AD Derivatives Newsletter: Fed Updates, Market Sentiment & Bitcoin Vol

Take a deeper into last week's macroeconomic shifts, Bitcoin's explosive rally, and strategic trading insights. From market volatility to crypto opportunities, here's everything you need to stay ahead in the Crypto options market.

USA Week Ahead (ET):

1. Monday to Friday - Various Fed Speakers during the day

2. Tuesday 8:30a - Housing Starts

3. Thursday 10a - Existing Home Sales

4. Friday 9:45a - PMI

5. Friday 10a - Consumer Sentiment

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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

Last week “good news” proved to be “bad news” as the Fed said that it’s too early to determine whether the Fed will cut rates at its December meeting.

Wednesday we had the CPI data release. The yearly rate of inflation crept up to 2.6% from 2.4%, marking the first upturn in seven months. 

However, Collins and Fed Chair Jerome Powell see recent inflation increases as residual effects of past price shocks rather than new pressures.

Friday we also had retail sales data that beat expectations. Coming in at +0.4% (vs +0.3% expected) with a September revision higher as well. 

Chart: CME FedWatch Tool

According to the CME FedWatch Tool, the probability of rates remaining steady in December has increased to 38.1% from 26.1% a month ago. 

Chart: VIX Index (TradingView.com)

This sent the SPX down -1.32% on Friday and cause the VIX to spike from under 14 to as high as +17 intraday. Testing the post election highs in VIX. 

It will be interesting to see how VIX reacts to the coming holidays and the seasonally lower volatility usually found in December. 

Market sentiment is near all-time highs according to an article on WSJ.com.

WSJ.Com 

Call option trading is near historical highs while U.S. equity funds saw $56 billion in weekly inflows, the second-largest on record.

Expectations of lower taxes, deregulation, and tariffs boosting domestic manufacturing under Trump’s administration.

As a result, bullish sentiment among individual investors surged to 49.8%, while neutral sentiment dropped to a two-year low.

If sentiment recover from Friday and remains bullish into EOY I would expect VIX to test sub-13 during December lows. 

BTC: $89,402 (+13.7% / 7-day)

ETH :$3,074 (-1.7% / 7-day)

SOL :$235.90 (+16.7% / 7-day)

Crypto Options Overview

Financing Bitcoin Volatility Purchases? 

TL:DR Bitcoin volatility seems cheap to me… a great set-up for “buy high, sell higher” 

Since the election, Bitcoin has had two consecutive double-digit rallying weeks.

Chart: Bitcoin ATM Term Structure

That said, the explosive moves higher in spot have been simultaneous accompanied by volatility selling as the election “event risk” has passed us by. 

We can see the chart above ATM volatility is basically mid-range compared to the past 12-months. 

Chart: BTC ∆25 RR-SKEW

On the other hand, ∆25 RR-Skew for Bitcoin is at the 12-month highs (which makes sense given spot prices trading new ATHs and approaching the $100k level) but the futures 90-day Basis actually has room to run higher. 

Bitcoin derivatives pricing is NOT overly expensive here in my opinion.

Chart: 30-day BTC VRP

Currently Variance Risk-Premium for 30-day options (a good proxy for the Dec 27th expiration cycle) is trading near 0. This is one of the cheapest premiums witnessed in such a strongly bullish environment. 

However, another Bitcoin related asset is trading very high volatility levels and this could set-up an interesting relative vol play. 

MSTR volatility is trading near 4-year highs at about 125% IV (2x BTC IV). 

Chart: MSTR ATM Term Structure

What’s even more interesting is the strong “Backwardation” currently witnessed in the ATM term structure. BTC by comparison is merely “flat” 

Chart: MSTR ATM Term Structure

And the ∆20 Delta RR-Skew trading near +20% premium normalized by ATM volatility. 

Chart: MSTR ∆20 RR-SKEW / ATM IV

This is 2x the Bitcoin relation (also normalized by ATM IV).

Chart: BTC ∆25 RR-SKEW / ATM IV

Now, fundamentally speaking, MSTR is a leveraged BTC vehicle of sorts but shares are currently trading about 2.5x over BTC asset holdings (a downward drift catalyst) and Michael Saylor is actively selling equity (shares) to buy more BTC (another downward drift affect on share prices). 

(Not financial advice, for illustrative purposes only)

An interesting idea in my mind would be to sell OTM broken wing flies on MSTR and use credit to buy BTC Call Spreads or $90/100/110 flies on BTC with staggering maturities… something like that.

Chart: ETH/BTC Ratio

Ethereum saw a brief bump higher post election as the market viewed the Trump election as favorable for regulations that directly affects DeFi. 

However, that ETH outperformance has been COMPLETELY faded. Yuck! 

Fundamentally speaking, ETH faces serious headwinds as the value proposition of “sound money” (aka deflationary supply due to transaction fee burn) has flipped to inflation supply as nearly all DeFi transactions are being executed on L2s as opposed to ETH L1 itself. 

I believe that’s drastically dragging prices down. 

Chart: Ethereum SVI CDF

That said, the ETH CDF has only 28% of terminal values being above $4,000 for the June 27th, 2025 expiration… 

From Beta performance alone, prices could easily rise above $4,000 in a bull market without any change in ETH’s relative performance. 

So that’s worth keeping in mind. 

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

All time high TVL ($69M) and fee ($121K) week! Also all time high for trades (43K) and active users 1.5K.

Bullish sentiment prevails with BTC call OI at 582 and calls at 189. Similarly, 25 delta skews for both the 7 and 30 DTE (for BTC) remain high at 10.2% and 8.4% respectively. 

ETH skew sentiment is noticeably smaller around 3% as ETH does not have the same level of momentum as BTC currently. 

BTC VRP has converged to near 0 as IV levels have fallen post election. 

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.