BTC Autopsy
Friends,
In Sunday’s surfing volatility, I recapped my IBIT (the spot BTC ETF) options trading for the 10 days preceding the March 14th expiry.
That post steps through the conceptual steps and flow of trading “surfing” volatility. I mentioned that trade went about as well as it could have since the stock pinned my short. But that’s reporting results. Evaluating the trade requires decomposing the “vol p/l” because that was the intent of the trade.
Just to recap, Sunday I wrote:
On March 4th, I initially paid 61 vol for the April 38 puts and sold them at 63 at the Mar14 expiry, while the Mar14 48 puts I had sold at 64.5 vol saw their IV get crushed as they pinned near my short strike. The stock was $48.50 when I put the trades on and was trading $48.14 at expiry.
The ratio trade collected $0.67 [I wrote .65 in the last email but as I did the autopsy it was actually $.67] on the small leg upfront. As the fronts expired worthless, I closed out the larger short leg at $0.40 per contract, yielding a total profit of $1.47.
When I break down the attribution, I see a small win on IV (although the vega isn’t as meaningful as the gamma/theta battle on options of these tenor), a giant win on realized, a small loss on delta, and then the positive luck on path which is the short expiring at the strike.
I promised to publish the actual attribution.
From that point of view you will see how I got lucky. But you’ll also see inherent noise in evaluation.
There’s big lessons in this.
We will work through this in 3 steps.
Actual performance
Benchmarked performance
Why they differ and what that reveals about vol trading
Onwards…