April 3, 2024

Crypto Options: Demand for Puts as Technicals Worsen

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.

Realized Volatility

Huge drop off in realized vol last week as spot struggled to break away from key levels 70k (BTC) and 3500 (ETH) with 10d realized down to around 50 for both assets.
Implied vol did not budge as anticipation of large swings around the halving remains as well as key supports being breached which keeps traders on edge.
The relative resilience of implied vol has led to very positive carry once again with both assets showing variance risk premium of near 20 vols. This should entice some gamma sellers back into the fray.

With the mid-April halving date being seen as a "vol event", we may see implied vol stay rich and provide a big vol reset opportunity for later in the month.
NFP is the major macro data point this week but with rates vol getting crushed, we don't see it moving markets too much.

Term Structure

BTC

BTC term structure moves into a slightly steeper contango.
April expiries starting to come under some pressure but remain slightly kinked for 26 Apr.
Long-dated vol unchanged.
Skew shifting lower across the curve and taking front end back to put premium.

ETH

ETH term structure holding up better this week as spot traded poorly.
Most of the curve was around 2 vols higher except for April and May unchanged.
Front weekly vol caught a bid as we dipped below support.
Skew flipped back into put premium out to May as protection buyers come in.

Relative Value

ETH/BTC

ETH/BTC vol spread shifted higher across the curve as ETH vol traded firm whilst BTC softened this week.
Realized vol spread still shows ETH realizing better on both a 10d and 30d basis which is supportive of the spread.
The ETH/BTC spot spread looks to be breaking down and may be at risk of a big move lower if the technical break is confirmed. This explains why ETH puts hold a relative premium to BTC puts.
We still favor an overshoot on the downside as the bullish narrative from halving dynamics will likely favor BTC and probably pull in more ETF flows in the near term. We would use a panic out of ETH as an opportunity to get into longer-dated call spreads.

Skew

ETH - BTC

As the rally fizzled out last week, put premium returned in the front end as protection buyers rushed in again.
The BTC skew curve has a slightly put skew out to mid-April and then goes back into call skew as before, reaching near 8 vols in March 2025.
The ETH skew curve is steeper with as much as 5 vol put skew in 19 Apr but then a 6 vol call skew in the back end of the curve. This indicates what the market is thinking about ETF timing.
ETH's higher beta and lack of immediate catalyst have got the market much more cautious on the near-term outlook and we agree that it makes sense to hedge a large part of ETH exposures at this point. Put spread collars look sensible at these higher vols.

Crypto Option Flows

BTC

BTC options volumes were down another 20% to $8Bn. 26 April was active due to halving plays. We saw hedging in outright 72k puts and 66k/80k bearish risk reversals. However, there were also bullish trades in selling 26 Apr 60k/55k put spreads and buyers of 70k/85k call spreads. Long-dated call buyers were also seen in 27Sep 90k, 27Dec 100k, and 28Mar25 200k calls outright.

ETH

ETH volumes down 30% to $4.7Bn. Primarily bearish flows as as outright puts and put spreads were bought in April expiries. On the bullish side there were some smaller clips of calls and call calendars with 26Apr 4000 calls a favoured strike.

Gamma Positioning

BTC

BTC dealer gamma went deeply negative into expiry last week but is now back to around -20m where it was this time last week. Whilst spot chopped around but couldn't deviate too far from the 70k level.

ETH

ETH dealer gamma moved briefly into negative territory into expiry but has since reverted to positive. Spot is trading weak, and dealers appear to be short down to 3000.
We think bigger forces are at play beyond the gamma positioning right now.

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