Both sides quoted in a 22.32% week: which leg to shrink
Should the desk keep quoting both sides at normal size to capture 2.02 times normal volume, or cut size and skew the side the rally keeps lifting?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 14 December 2020, BTC rose 22.32%, from 19,174.99 to 23,455.52, a 99th-percentile return against 148 weeks of history. It ranged 27.87%, with the low at 19,000 on Monday and the high at 24,295 on Sunday 20:00 UTC, then fell 3.31% in the hour starting 21:00 UTC. Realised volatility was 71.5%, dollar volume 14.28 billion, 2.02 times the prior twelve weeks, and eight-hour funding averaged 0.0292%, peaking at 0.0782%. ETH lagged by 14.3 percentage points. An illustrative desk quotes both sides of BTC with a small inventory limit and must set quote sizes.
Judgment
The desk's loss comes from the side that fills and then runs away, not from missing fills. Set each side's size so Sunday's 3.31% hour stays inside the inventory limit, and skew quotes to stop building a short into a rally whose close sat at 84.1% of the week's range. Give up part of the 2.02-times volume rather than carry a position against 71.5% volatility and funding that averaged 0.0292% per eight hours, a rate at which longs pay shorts. Do not hedge in ETH, which fell 11.69% against BTC.
What would change it
Restore normal size when a later week records a largest hourly move clearly below 3.31% and a close location near mid-range. If funding turns negative, the crowded-long flag lifts. If the return percentile stays near 99 with the same hourly moves, the cut holds.
What sets this case apart
The choice is which side of a two-sided quote to shrink, driven by where fills land inside a 99th-percentile week, not by a view on direction.