A sold-volatility book meets a 30.90% range and a 4.23% hour at the Sunday low
Should the desk buy back part of its sold volatility to hedge this week's realised moves, or keep collecting premium with the position fully exposed?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 12 April 2021, ETH rose 3.91% to close 11.58% below its 52-week high, after a 30.90% range between 2,548.29 (Friday) and 1,946.80 (Sunday 03:00 UTC) and 98.2% annualised realised volatility. The best day gained 7.55%, the worst lost 4.33%, and the largest one-hour move was -4.23% at the Sunday low. Volume of 14.08bn dollars exceeded its prior 12-week average, and 8-hour funding averaged 0.1044%. An illustrative options desk has sold volatility and now sits short gamma (losses accelerate with each large move) into a week that closed in the middle third of its range.
Judgment
Hedge, but only in part and only gamma. Buy back a fraction of the sold volatility sized to a -4.23% hour rather than to the 30.90% range, and leave the rest of the short premium position open because the close sat in the middle third at 48% of the range, with no directional evidence. Do not chase delta at the Sunday low: the week's largest one-hour move landed there, so hedging then prices the hedge worst. Accept the theta given up on the fraction hedged.
What would change it
If the following week's realised volatility falls well below the 98.2% this week printed and ETH holds above the 1,946.80 low, the partial hedge can be unwound. If another one-hour move beyond -4.23% or a second day near the 7.55% gain appears, the hedged fraction rises towards the full position.
What sets this case apart
The hedge decision is set by a mid-range close colliding with a -4.23% one-hour move at the Sunday low, not by a trend or a forecast of direction.