AD Derivatives NL: Quiet Macro Week, Crypto Stability, & Election Vol

USA Week Ahead (ET):

1. Monday 3 pm - Columbus Day Holiday + Wallace Speaks

2. Tuesday 8:30 am - Empire Manufacturing Survey

3. Thursday 9:15 am - Philly Manufacturing Survey

4. Friday 12:10p - Wallace Speaks

Disclaimer: Nothing here is trading advice or solicitation. This is for educational purposes only.

Authors have holdings in BTC, ETH, and Lyra and may change their holdings anytime.

MACRO

This upcoming week is relatively quiet on the US macro front. There will be an ECB rate decision, expected to be a -25bps cut, otherwise, with a Monday holiday there isn’t much else. 

Last week, we had an encouraging inflation reading as the PPI came in below expectations +0.0% M/M while economist expected +0.1%. 

12-month trailing PPI is now +1.8% annualized, below the Fed’s inflation target of 2%. Which is great news. 

This datapoint is important for PCE (the Fed’s favorite inflation measure) which will be released on Halloween 10/31. The last reading before the November FOMC meeting. 

Last week, we noted that there’s some potential for Jerome Powell to act slowly w.r.t. further rate cuts. 

As the job market remains strong and stock prices are making new all-time highs, why is the Fed in a hurry to cut another 25bps in Nov? 

Chart: CME FedWatch Tool (Last Week)

Chart: CME FedWatch Tool (Now)

We can see the market started pricing in a higher “no change” probability for the Nov FOMC rate decision. 

Last week that scenario had only 2.6%, today it’s a 10.5% probability. That was a decent repricing trade. 

The other interesting macro trade going into the election is the VIX (and related ETPs, UVXY & UVIX). 

Currently the VIX is hovering above 20 while SPX realized volatility is about 12 right now. 

Post election, I’d expect a drop lower in VIX as the election is clearly keeping a juicy premium for IV over RV. 

BTC: $62,495 (-0.4% / 7-day)

ETH :$2,449 (-0.1% / 7-day)

SOL :$145.39 (-0.5% / 7-day)

Crypto Options Overview

Week-over-week, the market for crypto was almost completely unchanged. BTC closed merely -40bps lower than last week, despite and intra-week gyration around CPI and PPI. 

I continue to think the US election is the biggest driver of crypto prices into EOY and until then we will likely continue to consolidate below all-time-highs. 

Chart: BTC SVI Calibrated (CDF)

BTC SVI Calibrated (CDF)

Looking at the two most interesting option expiration cycles, using our SVI_calibration (Click for White Paper), we can derive the cumulative probability distribution (CDF) to observe what the options market is implying. 

The December contract shows only 25% of observations being above $72,000 (new all-time highs by EOY). 

I can see why traders want to buy DEC upside, this seems rather low to me as GOLD breaks higher, Stocks break higher, Trump gains momentum and Bitcoin spot bounced back from a $60k test last week. 

Chart: BTC SVI Calibrated (PDF)

The November 8th, 2024 “election expiration” is only pricing in a 15% probability density function (PDF) of observations above $72k (or new all time highs). 

The relationship between 11/8 and 12/27 continues to be interesting. 15% probability seems high, while 25% for 12/27 seems low. 

We’ve talked about this type of trade before, but doing some short of calendar ratio, diagonal or vertical roll ratio, seems interesting to us. 

(Ex Trade) Not financial advice

[SELL] 2x Nov $75k-$90k = +$1166 credit, -∆24, -(v)56

[BUY] 1x DEC $75k-$90k = -($1880 debit), +∆18, +(v)39

This type of trade isolates the dynamics of a post election vol crush, consolidation up to the election, post election EOY really, A great structure that captures short-vol without open-ended risk.

Paradigm's Week In Review

Paradigm Top Trades This Week

Weekly BTC Cumulative Taker Flow

Weekly ETH Cumulative Taker Flow

BTC Cumulative OI

ETH Cumulative OI

BTC

ETH

Whale Trades Calling Derive Home

The largest onchain options trade printed on Derive!!! The user: 

Sold 100 of the Nov29 $50,000 BTC puts

Bought 100 of the Nov29 $70,000 BTC calls

Sold 200 of the Nov29 $80,000 BTC calls 

and collected ~$20,000 in premiums. See this tweet for more.

This makes Derive the third largest on-chain exchange based on OI (behind Hyperliquid and dYdX). See this tweet for more.

Realized Volatility Drops but IV remains high

For BTC, ATM 30 day IV has risen slightly to 53.5% (ETH: 58.8%) while RV has dropped gradually to 43% (ETH: 48.7%)

This could indicate a slow-down in price movements in the lead up to the US election while the market continues to see a high demand for options. 

The 30 day VRP has also grown constantly and currently sits at 15% for BTC and 12% for ETH. 

Forward Vol Spike Remains

All eyes remain on the Nov 8 expiry in light of the US election with a large forward volatility spike for this expiry.

BTC IV for the expiry is 53.7% while the forward vol is 69.8%. For ETH this is 58.7%/74.7%. 

For BTC this gives a 95% chance of a between -21.02% and +26.62% between Oct 25 and Nov 8. For ETH we have a 95% chance of a move between -23.56% and +30.82% for this same period. 

AMBERDATA DISCLAIMER: The information provided in this research is for educational purposes only and is not investment or financial advice. Please do your own research before making any investment decisions. None of the information in this report constitutes, or should be relied on as a suggestion, offer, or other solicitation to engage in, or refrain from engaging, in any purchase, sale, or any other investment-related activity. Cryptocurrency investments are volatile and high risk in nature. Don't invest more than what you can afford to lose.