AD Derivatives Newsletter: FOMC Decisions & Market Trends for Dec 2024

Get insights into the latest crypto options analytics, FOMC rate decisions, and market trends for Bitcoin, Ethereum, and other key assets. Learn about current volatility and trading strategies.

USA Week Ahead (ET):

1. Monday 9:45a - Flash PMI

2. Wednesday 2pm - FOMC Rate Change & Press Conference

3. Friday 8:30a - PCE Index

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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 Overview

This week we have the FOMC rate decision. This is the last rate decision for 2024 and it’s expected to be cut by -25bps. 

The Press Conference with Powell will be the most important aspect however, as the Fed’s forward path for rates is unsure right now due to the strong labor market, Wednesday’s higher inflation (+2.7% y/y) and markets continuing to hit all-time-highs. 

The CME FedWatch tool shows the market pricing in a 96% probability of a 25bps cut. 

Later in the week we have the PCE inflation rate released. This is the Fed’s preferred inflation gauge and will give us good insights into wether the most recent CPI release was a fluke or more signs of inflation coming back. 

On Wednesday of last week, Dec 11th 2024, CPI was released and the all items index rose +2.7 percent for the 12 months ending November, after rising 2.6 percent over the 12 months ending October. (Statement here)

The VIX has been stubbornly higher than expected last week as seasonality and higher markets battle war narratives (including maybe this weird “Drone” thing)

Chart: VIX 5min Chart (ThinkOrSwim)

Overall, I think VIX heads lower and markets remain bullish into the EOY. These seasonality traditional trends are too engrained and the market is too bullish to keep vol bid. 

I expect to end the week lower as SPX realized vol is only printing around 10% 21-RV.

Something like 12.50 VIX post FOMC seems logical. 

BTC: $102,645 (+2.6% / 7-day)

ETH :$3,849 (-3.6% / 7-day)

SOL :$216.46 (-8.1% / 7-day)

Crypto Options Overview

IBIT spot Bitcoin ETF flows continue to come in strong. 

IBIT is in the top dozen equities for option contract trading volumes.

Looking at the biggest trades on Friday Dec. 13th, it’s interesting to see what’s been active. 

IBIT Top Trades (12/13/2024)

The top trades are the 1yr $35 Puts and the 6-month $30 Puts.
The average volume weighted IV traded was 70.75% and 75.38% respectively. 

The $35 Puts for Jan 2026 traded +10k contract with an IV range of 73.52% to 69.94%, VWAP at 70.75% suggests net selling from the street… potentially Cash Secured put selling flows (for traders who missed the rally) 

Chart: IBIT ATM IV Term Structure

We can see a Contango ATM term structure for IBIT which is no surprise considering the large premium of IV over RV. 

Chart: IBIT Realized Volatility

Long dated RV is about 57% while 1yr IV is about 68%. This makes short-vol attractive… especially given the long IV trade is likely due to US investors DYING to trade Bitcoin options (buying vol to speculate… especially given the bullish narratives). 

Bullish Delta with short Vega structures is likely the best play, given the mania around crypto is creating a large implied to realized premium. 

Chart: MSTR ATM IV Term Structure

MSTR has a similar theme. The big news event MSTR investors were waiting for was the addition of MSTR to the NSDQ 100 index. 

(MicroStrategy secures Nasdaq-100 inclusion)

Now that the event occurred (Friday) we could very well see a “sell the news” reaction… If not in spot, at least in IV.

Chart: MSTR Realized Volatility (4yrs)

We can see that historically speaking the current realized volatility level of about 110% is historically very high (75% percentile over the past 4-yrs) with a 21-RV range of about 70% to 160% seen recently. 

Chart: MSTR Realized Volatility

With the IV ATM term structure being in Backwardation at 120% IV for 60-DTE, there’s a good VRP to be harvested if the Nasdaq-100 inclusion is a sell-the-news type of event. 

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

Derive just hit its highest week for trading volume and trading fees!

Derive is consistently the #1 venue for 24-hour volume.

We can see that Aevo, usually the second largest venue, is far below Derive in terms of 24-hour volume. 

Cumulative volume has a shrinking margin despite a head start launch. 

Many participants are awaiting the DRV -1.84%↓ token launch (TGE) event on January 15th. 

Given a max supply of 1 Billion DRV (like RBN), we can assume RBN (Ribbon Finance, the token behind Aevo) is a decent comparable for DRV.

Given this comp., DRV likely to launch at least above $0.50 a token, if not higher, given the relative exchange outperformance for Derive vs Aevo.

Chart: Ribbon Finance via Coingecko.com

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.