Bitcoin Put Spreads and Risk Reversals for Cost-Conscious Downside Protection
Summary
The note examines strong Bitcoin downside-option demand during a continuing decline. It reports demand for 58k puts and describes put spreads and risk reversals as ways funds are structuring bearish or protective exposure. The author cites implied volatility above realized volatility, sharply elevated put skew, and a large notional purchase of March 6 puts as evidence of heightened demand for protection or outright bearish views.
The proposed structures reduce the cost of holding downside exposure by selling another option: a put spread sells lower-strike puts, while a risk reversal can sell calls to help fund puts. The article argues that these structures may extend the duration of a successful position compared with buying puts outright, but it does not provide a payoff comparison, risk analysis, or backtest. Selling the offsetting option changes the position’s exposure and can limit gains or create additional risk depending on the market path. The observations are a short-term reading of one week’s flow and volatility, not a general result about strategy performance.
Key ideas
- The article interprets elevated put skew and implied volatility above realized volatility as signs of downside demand.
- Put spreads can reduce upfront cost by selling lower-strike puts against purchased puts.
- Risk reversals can help finance put exposure by selling calls.
- Lower-cost structures alter the payoff and risk compared with outright puts.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.