#jlabsdigital

The storm is here

The early morning sun hit me square in the eyes.

That paired with the sound of crashing waves in the distance coming in through the opened salt stained windows was as good of an alarm clock as I could ask for.

Mother nature was telling me it was time to wake up, I abided.

Still groggy and covered in sand from the beach bonfire the night before, I rolled out of bed. The wooden shack floor gave its familiar good morning creek as I took my first step in my morning routine: light stretching followed by coffee.

I stepped outside to enjoy the overly strong brew in the hammock and felt it…a sense so familiar after having grown up along the New Jersey shore it sent goosebumps up my arms. 

There was a late summer chill in the air, and this time of the year in the northeast it could only mean one thing: waves were coming. 

I rushed back inside, grabbed my laptop, pulled up surf forecast to confirm my intuition.

A cold front was working its way down from the north, creating what’s known as a nor’easter thanks to the weather system's collision with the warmer waters.

Best part, its arrival was the holiday weekend. 

Not only would the storm clear our beach towns of unwanted tourists from North Jersey and NYC, but we’d also have 10-foot swells to ride. A drastic shift in fortune, after a summer full of obnoxious tourists we call “bennys” and choppy 3- to 5-foot waves.

The moment I had been anticipating all year was finally here, and there was only one thing left to do—wax up my board and prepare for the storm.

This past week I’ve felt a similar “big wave breeze” taking place in the Bitcoin market, telling me the storm of volatility we’ve been so eagerly anticipating might finally be ready to make landfall.

Let’s dive into some options data below to see if we can get a forecast on when it might hit.

Tide Shift

What a difference a week makes.

Just last week we were discussing how the volatility crush regime we’d been experiencing since BTC peaked in March was frustrating options buyers to the point of capitulation. 

That all changed last Wednesday morning when the CPI report we mentioned last week as a potential catalyst fulfilled the prophecy and expanded BTC’s price outside of the long held range between its 100-day moving average (MA) support and 50-day MA resistance. 

As the old adage goes: “Never short a boring market.” 

Readmore

The storm is here

The early morning sun hit me square in the eyes.

That paired with the sound of crashing waves in the distance coming in through the opened salt stained windows was as good of an alarm clock as I could ask for.

Mother nature was telling me it was time to wake up, I abided.

Still groggy and covered in sand from the beach bonfire the night before, I rolled out of bed. The wooden shack floor gave its familiar good morning creek as I took my first step in my morning routine: light stretching followed by coffee.

I stepped outside to enjoy the overly strong brew in the hammock and felt it…a sense so familiar after having grown up along the New Jersey shore it sent goosebumps up my arms. 

There was a late summer chill in the air, and this time of the year in the northeast it could only mean one thing: waves were coming. 

I rushed back inside, grabbed my laptop, pulled up surf forecast to confirm my intuition.

A cold front was working its way down from the north, creating what’s known as a nor’easter thanks to the weather system's collision with the warmer waters.

Best part, its arrival was the holiday weekend. 

Not only would the storm clear our beach towns of unwanted tourists from North Jersey and NYC, but we’d also have 10-foot swells to ride. A drastic shift in fortune, after a summer full of obnoxious tourists we call “bennys” and choppy 3- to 5-foot waves.

The moment I had been anticipating all year was finally here, and there was only one thing left to do—wax up my board and prepare for the storm.

This past week I’ve felt a similar “big wave breeze” taking place in the Bitcoin market, telling me the storm of volatility we’ve been so eagerly anticipating might finally be ready to make landfall.

Let’s dive into some options data below to see if we can get a forecast on when it might hit.

Tide Shift

What a difference a week makes.

Just last week we were discussing how the volatility crush regime we’d been experiencing since BTC peaked in March was frustrating options buyers to the point of capitulation. 

That all changed last Wednesday morning when the CPI report we mentioned last week as a potential catalyst fulfilled the prophecy and expanded BTC’s price outside of the long held range between its 100-day moving average (MA) support and 50-day MA resistance. 

As the old adage goes: “Never short a boring market.” 

We can see how clean this breakout now looks from a technical perspective when viewing BTC on the daily chart below:

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.”

There is a clue hidden in the data that tells us one of two paths are likely to happen shortly. Both spell opportunity.

I wiped the tiredness out of my eye and peered at the clock.

Midnight again.

Another day staring at the charts so long it felt like my brain was going to bleed.

What kept me captivated was not the data, but rather the various paths it could take.

Depending on the direction things went in the coming days to weeks, the opportunities could be monstrous.

I found myself lost in another world, imagining different scenarios that could lead to price movements and how it would play out on the charts. It’s no wonder I lost track of time.

Now for those of you familiar with the lore - I’m not much of a “shape rotator”, a slang term used to describe those gifted in STEM, 

I’m just a janitor on the internet after all - my talents put me more on the “wordcel” side of the spectrum, which means I’m better at writing than I am computer science. 

But when it comes to markets I have a foot in both worlds, out of necessity. 

There’s no other way to succeed in trading unless you can identify and act on big opportunities before they arise, and to do so requires at least a small amount of “shape rotating” ability. 

Today let’s dive into the world of ETH options to see what edge rotating shapes can provide.

Shape Shifting

The shape I’ve spent so much time rotating is seen below.

The Harry Potter Lesson

Why you need to watch whether or not the next big open interest contract rolls, and surfaces again.

I stared down at the mat in disbelief.

Sweat, pouring down my face like a faucet.

I had just been tapped out for the fifth time in less than five minutes by a man half my size….

To make matters even worse, he looked like Harry Potter.  

Whatever ego I entered the training room with that day left my body faster than the beads of sweat puddling below me. 

This humbling experience was nearly 15 years ago. It was the first time I did live rounds of submission grappling. 

Prior to it I had some experience in traditional wrestling and thought adding in submissions to the equation wouldn’t be all that different. 

Ego was my tuition payment on that error. 

My Harry Potter-esque training partner was a jiu-jitsu brown belt who was preparing for ADCC trials (the grappling equivalent of the Olympics), and I was a fresh young white belt who thought I was up for the challenge relying on brute force alone.

He quickly dispelled me of this notion by repeatedly submitting with ease. 

He had an answer for every attack I attempted.

In fact, the harder I tried to force positions, the easier it seemingly became for him to exploit the massive holes in my game. 

It wasn’t until I had an additional year or so of training that I even understood how it happened, but over time I came to realize that day I was playing checkers while my opponent was playing chess. 

I think back on that first day of training and the lessons I’ve learned on the mat since because the principles of jiu-jitsu have so many parallels with trading….

The harder you try to force a trade the way I tried to enforce my will on my opponent that day, the worse positions you’ll find yourselves in.

Rather than attempting to jam a square peg through a round hole, you’re better off waiting for the perfect set-up to present itself then executing swiftly when it does.

I bring this up now, because from my perspective the Bitcoin options market isn’t giving us a whole lot of reasons to be active. 

What this boring, range bound market does offer us however is the time to study the current structure and share some signals to be on the look-out for which will offer much cleaner set-ups if they come to pass as we exit Q2.

Watch For Lightning

The clouds began to darken while the cool breeze came rolling through.

I knew it was only a matter of time before the skies opened up, cleansing the hot ground below with buckets of rain.

This was mother nature’s signal that it was time for me to take cover under my porch and watch the rain play out. 

There are few things I enjoy more than a summer storm.

Especially the kind that creeps in unexpectedly late in the afternoon after a hot long day in the sun…

It’s a refreshing change that reminds me to slow down and calm my otherwise hectic overheated mind.

I’ve done it ever since I was a kid, and my favorite part has always been catching the huge crashes of lightning that often accompany the storm. 

One moment the environment is calm and docile, the next a giant flash comes bolting out of the sky leaving an earth shaking echo of thunder in its wake.

It’s startling if you’re not prepared for it.

Sometimes it’s violent enough to wake you up from a deep sleep.

But if you’re actively watching the storm play out, it’s not surprising at all. There’s always a few moments of delay between when the lightning strikes and the thunder roars.

I bring this up now because it reminds me a lot of what’s been going on with crypto volatility (or lack thereof) in recent weeks.

We’re in the calm phase of the storm, with prices slowly chopping down. And we only have raindrops, no flashes of lightning before a thunderous boom.

This lack of volatility and the boredom is lulling most people to sleep.