The error:Thinking high IV means bullish or bearish.
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Reality:IV is about magnitude of movement, not direction. High IV = expensive options.
Timeline
What Happened
Before event
IV spikes to 100%
Your thought
"High IV = bullish!" → Buy calls
Event passes
IV drops to 60% (vol crush)
BTC price
Flat, didn't move
Your calls
Lose value despite being "right"
💡
Fix
Separate your vol view from your directional view. If you're buying options, you're implicitly long IV. If IV drops, you lose even if direction was correct.
The error:Assuming you can exit a position at a fair price whenever you want.
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Reality:Options order books are thin. The book that looked deep when you entered may vanish when you need to exit — especially during the moves when you most need out.
Scenario
Value
You buy 10 BTC puts
Spread: $50 (tight)
BTC drops 8%
Your puts are now profitable
You try to sell 10 puts
Spread: $400 (wide)
Only 2 showing on bid
Rest need to be walked down
Effective slippage
~5% of position value lost
💡
Fix
Entry is easy; exit is hard. Always check depth, not just the top-of-book spread. Size positions to what you can exit in a stressed market, not a calm one.
The error:Holding positions through expiry without considering open interest at nearby strikes.
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Reality:Large open interest at round strikes (BTC $100K, ETH $4K) creates a gravitational pull. Market makers' gamma hedging activity pins spot to these strikes as expiry approaches.
When large open interest is concentrated at a strike — especially held by static hedgers (covered call sellers) — dynamic hedgers who are long gamma buy below the strike and sell above it, creating an "absorbing state." The strike acts as a magnet.
💡
Fix
Check the open interest heat map before expiry. If a massive strike is nearby, expect the market to gravitate toward it. Don't fight the pin — trade around it.
The error:Believing that buying an option limits your total loss to the premium paid.
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Reality:If you delta-hedge or adjust/roll a long option, cumulative hedge losses can exceed the original premium. Even without hedging, rolling a losing position accumulates costs beyond the initial premium.
Day
What Happened
Cumulative P&L
0
Buy call, premium = $1,000
-$1,000
5
BTC rises 3%, delta-hedge by selling spot
-$1,000
10
BTC rises another 2%, sell more spot
-$1,000
15
BTC drops 6%, buy back spot at higher prices
-$1,800
20
BTC drops 3% more, buy more spot
-$2,400
30
Option expires worthless. Hedge losses realized.
-$2,400 (2.4x premium)
💡
Fix
If you're delta-hedging, your max loss is NOT the premium. Track total P&L including hedge costs. In trending markets, hedge "whipsaw" can be brutal.