May 15, 2023
USA Week Ahead:
-
Monday 9:15a ET- Minneapolis Fed President Kashkari speaks.
-
Tuesday 8:30a ET- Retail Sales.
-
Tuesday - Various Fed Governors speak throughout the day.
-
Thursday 9:30a ET - Fed Vice Chair Barr testifies.
-
Friday 8:45a ET - New York Fed President Williams speaks.
-
Friday 11a ET - Fed Chairman Powell and former Fed Chairman Bernanke on the panel.
Disclaimer: Nothing here is trading advice or solicitation.
This is for educational purposes only.
Math-minded people here, pardon any typos.
MACRO THEMES: Mixed Data, suggesting wait and see.
On the dovish side of the equation:
Inflation edged slightly lower in April, likely keeping the Federal Reserve on course to pause interest-rate increases at its next meeting.
CPI rose 4.9% YoY, down from 5% YoY previously.
PacWest and other regional banks continue to face headwinds, especially as commercial real estate comes into focus.
All these are reasons for the Central Bank to pause and evaluate.
However, the VIX has dropped a lot since the banking crisis, as fear leaves the equity market, despite a resurgence in regional bank woes.
On the hawkish side of the equation:
Speaking in Germany on Friday, Fed Gov. Michelle Bowman said she wasn’t confident that the central bank was making enough progress slowing down economic activity and inflation, even though she allowed that interest rates were now at a restrictive setting.
Elsewhere, the BOE raised rates for the 12th consecutive time on Thursday to 4.5% from 4.25%, and signaled that more increases are possible as it released less gloomy forecasts for the U.K. economy.
Lastly, with 90% of S&P companies reporting results, Q1 earnings season fared much better than expected, as Goldman Sachs believes that the worst of the 2023 negative earnings revision cycle is now behind us.
Overall, we saw a rally in the USD last week which sent BTC down 6.6% - below $27k.
A pause is likely the worst-case scenario for BTC volatility as banking crisis fears and a Fed pivot have proven to be bullish.
Meanwhile, any surprise hikes would likely bring “downside volatility” to the BTC market.
ETH vol markets are still interesting, however, especially since we’re at historically low “relative vol” levels.
BTC: $26,923 (-6.6% / 7-day)
ETH :$1,802 (-5.9% / 7-day)
SOL: $21.00 (-6.5% / 7-day)
Looking at the past 2 years of BTC Dvol, it seems that there’s a structural trend toward lower IV overall.
The current ETH/BTC DVol ratio continues to be at interesting relative vol levels for ETH longs.
(BTC - 7-day VRP)
Although the long-term trend for BTC Dvol looks to be headed lower, in the short-term VRP is currently near 0.
The drop in BTC spot prices this week brought RV higher and now IV looks to be trading at “fair value”.
(BTC ∆25 RR-Skew)
This week’s spot price action brought short-term and medium-term maturities below the 0-line, for ∆25 RR-Skew.
The 180-day RR-skew continues to be in the positive territory for BTC.
(ETH ∆25 RR-Skew)
ETH long-term 180-day RR-Skew is negative; however, this divergence between BTC and ETH is also interesting.
Traditionally, crypto bull markets display outperformance for altcoins such as ETH.
This is another mean-reversion thesis that remains interesting (as talked about last week).
(ETH - 7-day VRP)
Lastly, ETH VRP for 7-day measurement is also in the “fair value” range currently.
Please share and retweet if you like this kind of analysis. It helps a lot.
PROPRIETARY “GVOL-DIRECTION” FLOWS - @Gravity5ucks
Over the past weekend, there was unusual trading activity in the Bitcoin options market in terms of both size and timing. Specifically, we observed the profit-taking of DITM calls with a strike price of $20k for both June and September, with a portion of the profit used to open new positions in $30k calls.
"Gravity Chart", with its vega-weighted sizing, highlighted three large call spreads/ratios in June: the first was a long $26k-$29k strangle, followed by a short 1x2 ratio spread k32$-$35k. The next day saw the closing of the higher strike for the long opening of a $31k call, resulting in the final long call ratio in case of activity by a single player.
(BTC AD Direction tables with uni_trade - Options Scanner section)
(BTC Gravity Charts Vega Weighted)
Building on last week's developments, we are witnessing a more bearish flow on Ethereum, with dominant selling of $2k calls and buying of puts at a strike range of $1.6k-$1.8k.
As noted in the past, the options flow in Ethereum tends to be more mixed compared to Bitcoin, where dominant themes are more easily observed week-to-week. This may reflect the price and realized volatility underperformance of Ethereum in recent months.
(ETH AD Direction tables with uni_trade - Options Scanner section)
Paradigm Block Insights (08 May - 14 May)
Outright option flows popular given drip lower in implied vols with spot. This was particularly true in ETH, where implied traded only 1-2v over BTC… chatter from clients: it feels too low.
BTC -4.5% / ETH -4% / NDX +1%
🌊 BTC
Predominantly bearish flows with the selloff, which differed from the usual buy-the-dip activity this year when spot trades towards the bottom of the range.
Outright downsides were the largest trades given the absolute level of implied, with smaller action in put spreads.
Largest downside flows:
1250x 19-May-23 25500 Put bought.
775x 19-May-23 25000 Put bought.
570x 19-May-23 26500/25000 Put Spread bought.
BTC 25d skews drift in greater favor of puts on the selloff, but remain persistently positive further out the curve, suggesting longer-term bullish sentiment. ETH skew is ~2-3v over BTC.
🌊 ETH
As vols compress across the curve, takers’ bid for July topside all week in delta-neutral formats. Largest prints:
10000x 28-Jul-23 2300 Call bought (delta neutral).
10000x 30-Jun-23 1900 Put bought (delta neutral).
7500x 28-Jul-23 2400 Call (delta neutral).
Tactical flows to the downside put on for the immediate risks in the market such as Wednesday’s CPI data, Binance DOJ, Debt Ceiling etc:
5000x 19-May-23 1650 Put bought.
5250x Put 30-Jun-23 1800 bought.
5746x 30-Jun-23 1600/1400 Put Spread bought.
#TBP | ETH Volatility Suppression Explained: A Conversation with Arca's Kyle Doane - Ep. 23.
Kyle Doane from Arca joins us in this captivating episode as we delve deep into Ethereum's volatility suppression, DeFi, and Bitcoin Basis.
BTC
ETH
The Squeethcosystem Report (07 May - 14 May)
Majors saw declines in the continued failure higher and resurfacing of regulatory concerns broadly. ETH ended the week at -5.35%, and oSQTH ended the week at roughly -11.51%
Volatility
Implied vol was quite active this week. Lower ends of the range traded in the low 40s and quickly traded back to the higher end in the low 80s.
Volume
The 7-day total volume for oSQTH via Uniswap oSQTH/ETH pool was $703.78k
May 12th saw the most volume, with a daily total of $178.51k traded.
Crab Strategy
Crab ended the week at +1.27% in USDC terms.
Lyra Weekly Review
Arbitrum:
Optimism:
Volatility:
Current ATM IV is ~45% in ETH, off 5 points on the week. Term structure is sitting in contango, with a slight call premium. Longer-dated IVs have remained firm at ~70%.
Trading:
Volatility continues to decline as ETH remains range-bound. The 1850P has been the most popular instrument to sell lately.
ETH Market-Making Vault:
The ETH MMV on Arbitrum has returned +3.42% since its inception, representing a weekly change of +.12%. Annualized performance since inception is +11.3%.
The ETH MMV on Optimism has returned +6.22% since its inception, representing a weekly change of +.10%. Annualized performance since inception is +6.98%. Returns for Optimism vaults have been stagnant as most of the volume is currently going through Arbitrum. These vaults will be deprecated in the coming weeks in favor of a more capital-efficient Newport version launching.
Depositors earn an additional 12.84% rewards APY, boosted up to 25.7% for LYRA Stakers on Arbitrum, or 6.07% boosted up to 12.14% for LYRA Stakers on Optimism.
Net MMV Exposure:
Both ETH vaults are long Gamma and Vega as it seems that traders are betting against volatility. The Arbitrum MMV is long at the money options across multiple expiries; fortunately, ETH has been moving enough to cover the vaults theta bill over the last week.
Optimism:
BTC Volatility:
BTC Market-Making Vault:
Lyra’s BTC MMV has returned +1.73% since its inception (August 16th, 2022). This represents a weekly change of +.33%. Annualized performance since inception is +2.14%.
Depositors earn an additional 14.25% rewards APY, boosted up to 28.5% for LYRA Stakers on Arbitrum, and 8.93%, boosted up to 17.86% for LYRA Stakerson Optimism.
Net BTC MMV Exposure:
Learn more about Lyra in this GVOL explainer video!
Trade: app.lyra.finance
Twitter: https://twitter.com/lyrafinance
Discord://discord.gg/Lyra
Watch @itseneff and @GenesisVol talk options here
