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Market case · BTC, week of 29 July 2024

A 14.78% week in the worst 4% of 337 weeks tests a short-volatility book's delta hedge

Should the desk buy back part of its short-volatility positions or delta-hedge them after a 58.7% realised-volatility week, or keep collecting premium at the current size?

The market facts are real; the decision maker is illustrative.

The week and the position

In the week of 29 July 2024, BTC fell 14.78%, from 68,249.88 to 58,161.00, with a 22.68% range between the high of 70,079.99 on Monday and the low of 57,122.77 on Sunday. Realised volatility annualised at 58.7%, the largest hourly move was -3.18% on Friday, and the week ranked in the 4th percentile of 337 weeks. Dollar volume reached 13.84 billion, 1.14 times the prior 12 weeks. ETH underperformed BTC by 2.99 percentage points. An illustrative options desk has sold volatility and now faces this realised move against its positions.

Judgment

Delta-hedge the existing short-volatility positions at the hourly scale implied by the -3.18% hour and the 58.7% realised volatility, and reduce the size of new short-volatility sales this week. The premium already collected is sunk; the live exposure is gamma, the acceleration of losses as price moves, and this week produced a 22.68% range and 58.7% annualised realised volatility. Accept lower premium income and higher hedging costs rather than carrying the current size into another week like this one. Keep short-volatility positions only where the strikes sit far enough from 58,161.00 to absorb a repeat of the week's 22.68% range.

What would change it

If realised volatility and the largest hourly moves fall back towards the levels of the four prior weeks, with BTC closing back above its open of 68,249.88, the hedge can be loosened and short-volatility size restored. Funding staying positive at 0.0076% per eight hours does not by itself reverse this.

What sets this case apart

The desk is already short the exposure; the decision is the hedge's scale, not whether to sell, and it rests on the realised hourly tail the week actually produced.

Weekly brief · week of 29 July 2024Week of 29 July 2024: Bitcoin falls 14.78% and Ether 17.77%, both closing near the week lowWhen both assets close the week near their lows after a mixed run of prior weeks, how much of the fall came from single days, and what does that say about the trend?Market case · ETH, week of 29 July 2024A sixth-percentile -17.77% week asks whether the ETH carry signal was a signalShould the research team suspend live capital on its long ETH signal for four weeks of paper scoring, or keep it running through a week this extreme?Concept · example: ETH, week of 29 July 2024Gambler's fallacyWhy does expecting a reversal simply because a losing or winning streak has run long often lead traders astray?Concept · example: BTC, week of 29 July 2024Hindsight biasWhy does an outcome that looks obvious in retrospect feel like something that should have been predicted?

Research notes on real market weeks, not investment advice. Sources: Binance spot BTCUSDT and ETHUSDT 1-hour candles and USD-M perpetual funding rates; weekly figures computed by WSTiger.

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