Excell with Options: A Long Straddle Approach to Bitcoin Options

If anything is clear in financial markets in 2025, it is that geopolitics has been the top issue for traders to contend with. A flurry of executive orders, headlines from news conferences, threats of tariffs and retaliation have consumed anyone following the markets this year. One date looms large over all asset classes right now and that is April 2, the day widespread U.S. tariffs on trading partners are meant to go into effect. If you are a risk bull, you might suggest these tariffs are simply negotiating tactics and other deadlines have been extended. If you are a risk bear, you may suggest that this deadline is the final straw and comes the day after the administration has told all of its departments to report back about the impact of tariffs. Suffice to say, this catalyst has the potential to cause a good deal of volatility in the market. 

Looking at the past six months, it is fair to say that bitcoin has been behaving more like a risky asset than a safe haven. For comparison, I show the performance of the front month futures for Bitcoin, Nasdaq and Gold. While many feel bitcoin is digital gold, or a safe haven for a different generation, the price action resembles more of the risky asset markets, which I approximate with Nasdaq futures. While gold has rallied to new highs on the talk of tariffs and fear of disruption of the global economy, Nasdaq and bitcoin have traded about 10% off their all-time highs in the same period. Even after the election, when risky assets traded higher, it was clear bitcoin was moving in tandem with Nasdaq while gold languished in a tight range, off the highs it had hit before the election. It may be fair to suggest that at least in this current period, bitcoin is a risky asset and not a safe-haven asset. 

In the top chart, one can see on a daily basis Bitcoin futures have traded below the Ichimoku Cloud. In addition, the lagging span has also moved below the cloud suggesting there could be a change in trend occurring. On a positive note, the RSI has come off oversold levels and the MACD has started to cross over and turn higher indicating there may be scope for an oversold bounce that could take markets back to the cloud levels, which points to $95,000 potentially.  The bottom chart shows the weekly cloud level going back five years. While prices are still above the cloud, indicating the bullish trend is intact, the MACD has crossed over and moved lower indicating a potential stalling of this trend. The market is coming off overbought levels at the end of last year and indicate there could be scope for more downside, even to the $60,000 level, while still maintaining this longer-term trend. This wide range of outcomes, whether looking at daily or weekly charts, which could occur on the back of a major market catalyst, give reason to think long volatility ideas might be interesting. Is higher volatility priced in?

Using QuikStrike, a trader can observe the term structure of implied volatility. In this case, I have chosen all options expiring in less than 30 days. Two things may stand out to you. First, you can see that there are now daily options, including Friday options, at the front end of the curve. Having daily options allows traders to customize their view around particular short-term catalysts such as this April 2 tariff deadline. Second, I see that the market is anticipating higher volatility as the April 2 date gets closer, with an upward sloping implied volatility term structure before that data and a leveling off after that date. It looks like Bitcoin options traders are looking at this date as the next potential for movement in the market.  

Looking at a chart of the volume and open interest in the Bitcoin options market, it is quite clear to me that on a year-to-date basis, the concentration of activity has been in the put strikes. Late last year, as Bitcoin futures rallied, there was a growth of demand for call strikes. Since the new year, the volume of calls has been relatively constant while the increase in volume I see in the options market is coming on the put side of the ledger, with traders hedging downside exposure or speculating that downside volatility could drive more dislocating moves. This may suggest the nervous side of the bitcoin market is more on the downside than the upside, further indication that bitcoin is now acting more like a risky asset than an uncorrelated asset or a safe haven. In the past, the nervous side of the market, the direction in which more volatility could occur, was often on the upside. Since institutional investors have come into the market in large sizes, this may be changing the dynamics of the bitcoin market. 

The next step for me is to compare the implied volatility that traders expect in the market to the realized or actual volatility in the underlying price. Using QuikStrike, I can compare the past 30 days historical volatility (orange) and the 30 day forward at-the-money implied volatility (blue). One can see that ‌implied volatility is below the last 30 days of historical volatility. While traders see the April 2 date as a catalyst, the expectation for volatility over the next month is below what has happened in the past month. Looking back over the last year, one can also see the historical volatility has tended to move higher on bigger moves lower in futures (August of 2024 and recently). Combined, this further suggests to me that there may be an opportunity to be long volatility into this April 2 catalyst date.

Now I want to look at the implied volatility surface to see if any particular expirations or strikes present a better relative value vs. the other options around it. In the top chart, I look at the implied volatility for the range of option expirations and ‌the range of deltas. One can see the upward-sloping term structure of the at-the-month options that traders have seen before, but when I look at the different deltas in the different expirations, there are no apparent outliers in the pricing of options. The skew in each expiration looks about the same, indicating that the only difference in pricing is coming from the term structure of implied and not from different skew or kurtosis in a particular expiration. With that information, I dial into the April 4 options in the bottom chart. I do this because these Friday options expire right after the tariff deadline on April 2 and should afford the most ‘bang for my buck’ in terms of gamma for that catalyst. I can compare the implied volatility by strike on April 4 and I see that the upside call options trade at or even below the level of the at-the-money options while the put side of the ledger has implied volatility that is considerably higher than the at-the-money ‌ options. Structuring long option ideas using upside options may look more favorable as a result.

I wanted to find a long volatility idea given the potential for movement on April 2 and the idea that, looking at the implied vs. historical, the potential for large movement didn't appear to be priced in. Referring to the technical charts, I can make a case for a move higher to $95,000 on the daily charts or a move lower to $60,000 on the weekly charts. Therefore, I really don’t have a strong directional view. With a view on volatility but not direction, straddles make the most sense for a trader. I've chosen to buy slightly out-of-the-money straddles instead of at-the-money straddles because the implied volatility is lower for the 86,000 strike than the 84,000 strike. 

I can look at this long straddle position and how I might win from two different perspectives. First, paying roughly 45 implied volatility means that I need 45/16 or 2.8% move per day every day to cover my time decay. Time decay is the rent a trader pays for being long gamma. Where does the 16 come from? There are 252 trading days and since the 45 number is an annual volatility, I can convert it into daily volatility by dividing it by the square root of time, the square root of 252, which is roughly 16. This is the move I would need to capture every day to pay the theta or time decay that a long gamma position has. In order to make money with this type of idea, I will need to be actively delta hedging my position either at set times throughout the day or based on moves, for example, every 0.5 standard deviations. This delta hedging behavior will keep this a volatility trade and not a directional trade. 

I can also look at it as a breakeven trade. Since I have chosen an upside strike straddle, the breakeven is skewed a little bit in that direction. I would need a move on the upside to 91,600 or a move on the downside to 80,300 to breakeven on the straddle if I'm not going to try and delta hedge my position throughout the day. The worst case would be a drift up to the long strike of 86,000 ,which is where the maximum loss occurs. I'm making the bet that a slow move higher to 86,000 is unlikely, and if there's a move higher, it's likely on the back of positive tariff news – either the extension of a deadline or even a negotiated settlement, in which case, I believe the move to 95,000 and the Ichimoku Cloud is a possibility. On the downside, if the administration plays tough, risky assets will have a tough time and there's no support until 70,000 at the earliest. In order to play a breakeven trade, I wouldn't look to trade delta each day and instead look for the resolution of the catalyst to lead to a large directional move. 

Long straddles in shorter-dated expirations can win based on an increase in realized volatility that can come from a move in a particular direction or active volatility even if there's no direction. The trader that buys the straddle has to determine how they view the volatility‌ playing out in the market. Without a strong directional view, I would personally prefer to actively delta hedge my position while I wait to see how the catalyst plays out, and then potentially let the deltas run a bit.

While long gamma and long convexity seem appealing because of the potential for unlimited gains, the reality is there's options for time decay each day the trader needs to be aware of. As I said, there are no free lunches in the market. 

However, with daily expirations, including Fridays, in the Bitcoin options market, traders can uniquely customize their view to take advantage of catalysts. 

Good luck trading!

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