AD Derivatives Newsletter: Fed Reports & Election Impact on Crypto Vol

USA Week Ahead (ET):

1. Wednesday 2 pm - Beige Book

2. Thursday 9:45 aa - PMI

3. Friday 10 am - Consumer Sentiment

Mn/Tu/Wd/Th = Various Fed Speakers

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

Chart: SPY TradingView.com

Chart: Finviz.com

The VIX has finally dropped last week. 

Implied held steady above 20% for a couple weeks, while 20-day realized was only a meager 13% volatility. This is a large premium built-in from the election. 

My thinking is that the post election SPX, like BTC, will see a volatility drop. This idea is further supported due to December being a historically quiet month. 

This sets us up nicely for sustained volatility normalization type of trade. 

On the economic front next week, we have a few Fed speakers, the Fed’s Economic “Beige Book” and the consumer sentiment survey. 

BTC: $68,495 (+9.8% / 7-day)

ETH :$2,698 (+10.4% / 7-day)

SOL :$159.39 (+10.2% / 7-day)

Crypto Options Overview

Citi Bank just released a report showing that the a Republican victory (sweep) would be the most bullish outcome for Coinbase stock prices and spot crypto. 

Chart: BTC ∆25 RR-Skew

Looking at the Bitcoin option skew, we can see the option market has priced in a similar sentiment pattern.

The July 13th assassination attempt had sent the election odds in Trumps favor, option Skew followed a path higher in response. 

As Biden dropped out of the election and Kamala began her campaign we saw a reversal lower, which culminated with the BOJ Carry trade unwind and simultaneous Kamala confirmation. 

Bitcoin ∆25 option RR-skew ended at -9 vol points.

The BOJ market reaction blurs the affects of the election on option skew in early August, but as of last week, we’re now seeing option skew rally back as the polls lean Trump once again.

This seems like the most likely tail-wind for latest Bitcoin spot move higher last week. 

Chart: BTC SVI Calibrated (CDF) LAST WEEK

Revisiting the probabilities outlined last week. We can see the November 8th expiration and December 27th expirations, have increased probability densities of spot ending above ATHs (72k) by the time of expiration.

Chart: BTC SVI Calibrated (CDF)

November 8th contract = 15% → 33%

December 27th Contract = 25% → 40% 

It’ll be interesting to see how this plays out into the election cycle.

Chart: Week-over-week ATM Term Structure Time Lapse

We can see a slight decrease in the Nov. 8th expiration forward volatility. 

The most interesting trades to me right now, find a way of being short this “election volatility hump” in a measured way. 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

Skews Rise and Remain high in US election leadup

The 25 delta 30 DTE BTC skews (difference between 25 delta call IV and 25 delta put IV) have risen from -1% to 6% over the last week. Similarly, those for ETH have increased from -5% to +2%. 

BTC call OI on Derive (533) is more than 2x that of puts (244) with ETH call/put ratio similar (11.1K v 4.7K).

BTC

This indicates general bullish sentiment around the US election, coupled with a significant forward vol spike (66.2 v 52 for BTC and 68 v 56 for ETH). 

BTC

$OP and $WIF perp markets now live!

ETH and wBTC spot markets now live!

Also on Derive

Derive’s monthly report featured by Coindesk here

A user borrowed $3M USDC against almost $5M in sUSDe

Derive vaults have accumulated $1.29M in yield in the last 16 weeks - averaging over 13% annualized.

TVL has risen to $60M and total fees generated has passed $2M! Most of this TVL is from non USDC sources, indicating a desire to use (possibly yield generating assets like LRTs) as collateral to generate further yield.

Opyn Overview

Crypto markets were trending upwards this week, ending the week positive. ETH ended the week at +6.99% and oSQTH ended the week at +12.02%.

Volatility

oSQTH IV is 112.28% vs. its ref vol. at 64.98%.

Crab Strategy

Even with trending ETH market conditions, crab strategy closed green this week at +1.32% returns.

Twitter: https://twitter.com/opyn_

Discord: https://discord.gg/YU2Kq6nPNP

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.