Crypto Options: Back in Bullish Mode

In this week's recap, Imran Lakha of Options Insight provides the latest insights into BTC and ETH derivatives markets. Explore trends in volatility, option flows, term structures, gamma positioning, and much more to stay informed about the dynamic world of crypto derivatives trading.

This week Imran Lakha walks us through some key points in crypto and the crypto options market.

Crypto News

BlackRock Launches First Tokenized Fund, BUIDL, on the Ethereum Network

BlackRock unveiled last week its first tokenized fund issued on a public blockchain, the BlackRock USD Institutional Digital Liquidity Fund ("BUIDL" or the "Fund"). BUIDL will provide qualified investors with the opportunity to earn U.S. dollar yields by subscribing to the Fund through Securitize Markets, LLC. "This is the latest progression of our digital assets strategy," said Robert Mitchnick, BlackRock's Head of Digital Assets. "We are focused on developing solutions in the digital assets space that help solve real problems for our clients, and we are excited to work with Securitize."

Realized Volatility

• Last week saw huge realized vol in both directions as crypto markets flushed out some weaker positioning and bounced violently from major supports near 60k (BTC) and 3000 (ETH).

• BTC 10d realized popped back into the low 80s and ETH realized got above 100%.

• Implied vol did not move materially higher despite the better-realized vol, as the flow was mainly switching from downside plays to upside and not a net buyer of outright vol. Also, the passing of the FOMC meeting had the impact of reducing all cross-asset vol which may have also been a factor.

• This divergence between implied and realized vol has taken volatility carry deeply negative at minus 12 for BTC and minus 24 points for ETH. These levels are not sustainable so either implied vols will need to recover if markets keep moving or spot will calm down. My guess would be on implied vol moving higher given how quickly crypto markets are moving at the moment.

• With the quarter ending this week, there may be some last-minute inflows coming from ETFs which may bring more upside volatility.

Term Structure

BTC

BTC term structure remains in contango despite high realized vol.

The middle part of the curve was the best bid, with 2-5 vol point increases from Apr24-Jun24.

Long-dated vol was slightly higher and remains around 80%.

Short-end skew flipped back into call premium.

ETH

• ETH term structure steepened into contango.

• ETH front end was small down even though realized was huge.

• More of a parallel shift higher from 26Apr24 onwards of around 2 vols.

• Massive turnaround in front-end put skew which from extremes above 10 vols last week is now in call premium.

Relative Value

ETH/BTC

• ETH/BTC vol spread stable but slightly lower in the 1-month (Apr) expiry as the halving bucket caught a stronger bid on BTC whilst longer-term maturities still slightly favor ETH.

• Realized vol spread still massively in ETH premium as 10d spread was around 13 vols. This doesn't seem to be moving the implied spread as ETH spot isn't performing and ETF approval is looking less likely near term.

• The ETH/BTC spot spread is still sitting near the lows of the range and we wouldn't be surprised if it breaks lower on a BTC pop into the halving, fueled by more ETF inflows.

• We think there may be a great opportunity to get into the long-term spread if BTC has another charge higher over the next month the ETH/BTC spot spread overshoots to the downside. We also think ETH vol will remain cheap if BTC is driving the action.

Skew

ETH - BTC

• Last week, short-dated put skew was well bid as many traders had piled into protection trades. These trades were monetized as spot-tested key supports and we saw a major reversal in skew back into call premium.

• The BTC skew curve is 1-2 vol call premium in the front and moves up to 6-7 in the back end. The ETH curve is similar, but this week's expiry has a 6-vol call premium and has been very volatile.

• The dramatic shift back into call skew suggests that investors were happy to monetize the short-term correction and are now looking for another major leg higher in crypto markets. Being long the underlying with some risk reversal hedges into the halving looks like a bit of a no-brainer here. It might make sense to use a hedge in ETH more than BTC as it won't have the ETF flows supporting it.

Crypto Option Flows

BTC

BTC option volumes were down around 30% to $10Bn. Protection was bought in 29Mar 60k/52k put spreads and 26Apr 68k puts. After the sell-off, traders started to monetize protection and flip to the upside. Notable clips were seller of 26Apr 55k puts, 26Apr 66k and 27Sep 90k call buyers. Vol players bought 29Mar 68k straddle and Mar/Apr calendars were also active.

ETH

ETH volumes holding up better at around $6.7Bn, only down 10%. Puts were monetized on the break down to 3300 in 29Mar and 26Apr. The main bullish trade was 26Apr 4000 calls bought outright. On-screen activity saw good size buying of 29Mar 3950 and 4000 calls.

Gamma Positioning

BTC

• BTC dealer gamma flipped into short last week and remained that way for most of last week. The big short strikes for Friday expiry are 68k and 70k. If we move up to 75k then the long strikes may slow us down.

ETH

• ETH dealer gamma moved back up into positive territory as spot sold off last week, but as we've bounced, the long gamma position is fading. The big short strikes for this week's expiry are 3500 and 3700 which will get bigger as the week progresses. We expect spot to remains unstable.

To launch our AD Derivatives App, click here.