Thread by @enriqueabeyta

WHY does #Bitcoin RIP on weekends? A Wall Street Fraternity called Theta Delta Gamma. #crypto
A thread 👇👇👇

People love to speculate on #Bitcoin. It has made billionaires and it is wildly volatile. But if the volatility isn’t enough, you can speculate doing options. And that’s just what people do. The primary buyer of #Bitcoin options are retail investors like you and me.

Someone has to sell those options. Those are called “market makers.” Their job is to make $ by selling options to investors. When an they sell you a call, they take the other side of your bet. To make $, they try to “hedge”– to transfer off risk, by trading #bitcoin itself.

They make their money by understanding the “Greeks.” In finance, people use Greek letters to indicate characteristics of any investment. Options have 3 primary components of their value: strike price, volatility, and time value. Let's talk Greek...

Time value. The amount of time until option exercise. An option that expires in Dec is worth more than an option that expires in Sept, simply bc more stuff can happen.

When an options dealer sells you a longer-dated option, he can make more $ because it’s worth more to you (the buyer)….but he is on the hook for that time value. Pros call this “theta” – time value.

Strike Price: this is where the option can be exercised. So a Bitcoin call at a $30,000 strike gives you the right to buy Bitcoin at $30k. Obviously the higher BTC goes, the more this is worth. But to a dealer, this is “delta.”

If #Bitcoin is trading exactly at its strike price, mathematically there’s a 50/50 chance that the call winds up being worth money, so there’s a 50% chance the dealer is on the hook. The dealer would “hedge” 50% of the position they had sold by buying BTC itself.

But if #Bitcoin is trading at $50k, and they have sold a $30k call, there’s a MUCH higher chance the call is worth something so they would own a lot more #Bitcoin to hedge themselves so they don’t get screwed when they pay off the option they sold.

Volatility. This is the heart of an option. Things that are crazy volatile can, by definition, go up or down a TON. In Greek, market makers call this “Gamma.” Options dealers are ALWAYS SHORT GAMMA.

This means, they make their money by selling volatility to you, the retail investor. Remember, they are selling options, volatility is the heart of options, so they are selling volatility.

So WHY does #Bitcoin rip on weekends? Low volumes and short gamma. On the weekends, large institutional players are not active in the market. That means volumes are low, so that price moves can be exacerbated. And when prices move enough, it triggers a cascade of events.

First, the prices starts to move up. #Bitcoin moves up thru various strike prices, which means that the dealers have to buy more so that they have the right “delta hedge.” The paradox is, the higher the price goes, the more they have to buy. But then, this triggers gamma:

The dealers are also SHORT “gamma”, i.e., volatility. When Bitcoin starts accelerating upwards, the actual volatility of bitcoin starts to rise, which means the value of the options rises. That’s great for consumers, not so great for the market makers...

...who now are short something that’s going up – and they now need to start buying it back in. Like in the underlying bitcoin, the rise in gamma makes them want to buy in the options that they are short, where they can.

So both delta and gamma work together to accelerate the price upwards into what folks like to call a PARABOLIC move. It only ends when it has reached a point that has squeezed all the dealers into covering, or found enough real money to sell, or a combo of the two.

That’s what happened this weekend and that’s why #bitcoin is frequently so crazy over the weekends. It’s all down to the options desks.

If this feels confusing, don’t worry – the guys who came up with this won a literal Nobel Prize. This is some of the most arcane stuff in finance and they’d be happy to keep it that way – and keep them rolling in the dough.

In SUMMARY - #bitcoin goes fucking CRAZY on weekends because options dealers get SQUEEZED on volatility! Want to learn more? Check out our work at empirefinancialresearch.com and hard-money.net