Crypto Options: ETH Call Sellers Dominate

Weekly Mid-week Crypto Derivatives Market Recap where Imran Lakha of Options Insight gives brief yet concise breakdowns of BTC's & ETH's Volatility, Term-Structure, Relative Value, Skew, Crypto Option Flows, and Gamma positioning.

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

Realized Volatility 

• Crypto realized vol drifted lower this week in both major assets leaving BTC at 40% and ETH 48% on a 10d timeframe.

• Implied vols followed suit, particularly the weekly expirations (pure gamma) that lost 6-7 vol points, whereas 1-month implied was more stable.

• Volatility carry is small positive in BTC (+2 vols) but materially negative in ETH (-6 vols) where realized has held up better but implied vols have been crushed on persistent vol selling flow.

• With BTC once again driving the recent strength in spot, we think ETH may struggle to keep up on a further rally in the near term due to gamma positioning providing somewhat of a "call wall" of resistance.

Term Structure

BTC

• BTC term structure falling back into contango which is to be expected when realized vol falls.

• Weekly vol took the biggest hit, down around 4 vols.

• Rest of the curve moving in a weighted fashion, with back end close to unchanged.

• The vol market is applying a small forward vol premium to expiries that capture the halving (April onwards)

ETH

• ETH term structure moving similarly to BTC and back into slight contango.

• Gamma buckets trading well below recent realized vol as selling flow overwhelms MM books.

•  VEGA still well offered, even in the back-end expiries which were down 1-2 vols

Crypto Options Skew

BTC & ETH

• BTC's skew term structure has completely flipped back into call premium as spot rallied off support down near 38k and GBTC selling slowed. The front of the curve trades at around 2 vol call premium which rises to 5 vols in the long-end expiries.

• ETH had similar moves and also resides in call premium across the term structure. Out to 3-month expiry only has a 1 vol call premium though, but back-end expires are in line with BTC. The bullish ETH narrative seems to be getting pushed out in time.

• Whilst call overwriters continue to dominate ETH flows, we think ETH skew will be capped in terms of calls, particularly in the front end. This kind of flow can become self-fulfilling for a while and keep realized vol low. However, last year showed, that once a strong enough fundamental reason appears to break out, call sellers may need to cover and this can reverse the vol dynamics quickly.

Crypto Option Flows

BTC

• BTC Options volumes up 10% this week and dominated by calls. Large outright clips of 29Mar 50k and 75k calls bought as spot bounced from 38k strongly.

• Interesting calendar trade where clients bought 26Apr24 41k straddle vs selling 23Feb24 37k/45k strangle 1.5 times (collect theta and "halving" VEGA).

ETH

• ETH options volumes are also up 10%, but all are driven by on-screen volume increasing. Big blocks were 16Feb24 2100/2350 bullish risk reversal and 23Feb24 2300/1900 put spread. Upside calls and call spreads bought in Jun and Dec24 3000-4000 strikes. Largest volume was on screen selling of 23F eb 2400 & 2500 calls (rolling down short 2700s) from big overwriter.

Gamma Positioning

BTC

• BTC dealer gamma positioning has become more neutral after large 26Jan 42k short strikes expires and fresh sellers of 23Feb options came in last week. Positioning is more balanced now after large calendar trades.

ETH

• ETH dealer gamma has risen materially and is as long as we have seen since November. The huge on-screen selling of Feb 2300-2500 strike calls has flooded the MMs with local options and crushed the vol. This will make it harder for ETH to move without real news flow.

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