A 30.13% weekly range forces a sold-volatility book to price the cost of its own hedging
Should the desk hedge its short-volatility BTC exposure now after a 101.8% realised-volatility week, or stay unhedged and accept directional losses to avoid paying to chase a 30.13% range?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 8 July 2019, BTC fell 10.83% from 11,410.00 to 10,174.18, after running to a high of 13,147.08 on Wednesday and then hitting a low of 10,103.00 late on Sunday. Annualised realised volatility reached 101.8%, the range was 30.13%, and the largest one-hour move was -3.72%. Volume ran 1.99 times the prior 12-week average, and the close sat in the lower third of the range. ETH underperformed BTC by 15.05 percentage points with a close correlation of 0.71. An illustrative options desk has sold volatility on BTC and must decide whether to hedge.
Judgment
A sold-volatility book is short gamma: it loses when price moves fast, and this week delivered a 30.13% range on double-average volume with the close near the low. Hedge the delta at a fixed band around current price rather than chasing every hour, because realised volatility near 102% makes continuous delta hedging expensive. Cut the position size so the worst realistic daily move, near Sunday's -10.41%, fits inside the desk's loss limit, and keep the hedge asymmetric towards the downside, where ETH's underperformance signals the pressure.
What would change it
If realised volatility falls back below the levels implied by the sold options for several weeks and the range narrows sharply, the hedge band can widen and the size limit can be relaxed. If the close moves back into the upper third of a weekly range, the downside tilt should be removed.
What sets this case apart
The decision is not direction but the cost of hedging a short-gamma book during a week when the underlying moved 30.13% inside the strikes sold.