Four rising weeks stall into an 11.24% range, and a short-vol book must size its hedge
Should the desk buy back a slice of the volatility it sold, or hedge delta only and accept another week like this one's 52.4% realised volatility?
The market facts are real; the decision maker is illustrative.
The week and the position
ETH fell 1.62% in the week of 13 November 2023, closing at 2,011.47 in the middle third of an 11.24% range, after four straight up weeks (6.8%, 7.9%, 5.38%, 8.09%). Realised volatility ran at 52.4% annualised; the worst day was -4.7%. The largest one-hour move, -2.85%, fell late in the UTC day, as did the week's low of 1,904.00 on Friday, after Monday's high of 2,118.00. Volume was 1.85 times the prior 12-week average. ETH also lost 2.4 points against BTC. Funding stayed mildly positive, averaging 0.0129% per eight hours.
Judgment
Four up weeks ended in a down week: realised volatility of 52.4% on an 11.24% range, with the low set on Friday after Monday's high. Buy back volatility, not delta: purchase a limited, expiry-defined portion of the sold options so the hedge costs a known premium and protects the tail rather than chasing each late-day swing. Leave the directional book alone; the close mid-range gives no signal on direction.
What would change it
If realised volatility falls back towards the mild funding-implied carry and the range narrows for several weeks, the bought volatility can be sold back. If ETH recovers above the 2,118.00 Monday high, the hedge can be trimmed before expiry.
What sets this case apart
A short-vol book in a topping streak is hedged by re-buying optionality for a defined period, not by trading the direction of a mid-range close.