Lessons From An Inferno

I couldn’t contain the chuckle.

It was the most obvious setup in my trading career.

This was two weeks ago, and Consumer Price Index (CPI) data was set to be released the next day.

Everything I could ask for as a trader was signaling to open a trade. Yet, self doubt engulfed me.

I had my checklist of indicators in front of me, all telling me it was time for a long-term call position:

- Options IV data - check.

- Relative Strength Index (RSI) - check.

- Bollinger Bands - check.

- Price in a downtrend on low volume - check.

- Negative sentiment - check.

But it was that last one that made me laugh.

I can’t recall a time any asset was more hated for underperformance than Ethereum (ETH) in 2024.

Heck, even I was guilty of this. In front of me the data was giving me a series of green lights. Yet I could feel Crypto Twitter’s sentiment influencing my core.

That’s the hard part in trading. The gut, bias. But you need to learn when to fade yourself and prioritize data over emotion.

I did, and quickly sent over my analysis to the Jlabs Digital quant desk with a recommendation we buy up some long-dated out-of-the-money ETH calls—the risk-reward was simply too good to pass up.

I believe my exact quote was, “This is probably one of those trades that will seem stupidly obvious in hindsight.”

Now, before you go congratulating me too much, we were only able to fill about half the size of the position we had hoped for.

We also had no idea this week’s white swan of ETF news was coming; we were just following what we saw in the data as a good risk-reward proposition. The honest truth here was most of the team was expecting a denial to come in, unlike the sudden wave of crypto Twitter pundits who were quick to high-five themselves after the white swan.

The reason for taking on this trade despite the guess that a denial was imminent was that the news would cause IV to spike. In turn, this would make long-term positioning more expensive even if spot price was lower.

It’s a trade that highlights the uniqueness of options.

Now, I’d like to take a quick moment and offer a mea culpa for not covering ETH’s options too much recently. It’s not the typical analysis I share. But it’s not for a bad reason.

You see, prior to this week, there’s been nothing much to talk about for the better part of two years. The post-Merge world of ETH options has been a relatively low volatility world dominated by Ethereum whales selling calls and buying puts to hedge their staked ETH exposure. They were eager to juice more yield from ETH.

It was a major volatility crush setup, creating a market as boring and methodical as the S&P 500.

But that all changed in a drastic way earlier this week when the news of ETH’s spot ETF approval suddenly broke.