Crypto Options: Ethereum Volatility Back in Fashion

Weekly Mid-week Crypto Derivatives Market Recap where Imran Lakha of Options Insightgives 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

• BTC realized vol bounced back into the 40s as spot tested 38k but failed to hold the level.

   

• Carry has remained positive all week as implied vols held above 50% as gamma sellers have not been as enthusiastic.

• ETH had a big pop in realized as it rally 12% in a day on the Blackrock ETF filing news, taking 10d realized up towards 60%.

• Short-dated ETH implied vol caught a 10 vol bid to reflect the new ETH-led volatility and volatility carry is close to neutral as realized vol still contains the large spot move.

Term Structure

BTC

• BTC term structure flattening on the week.

• Front-end slightly higher as GAMMA gets bought on test of 38k resistance.

• VEGA better offered from Dec23 onwards, with Jan24 down the most around 3 vols.

• Front-end may struggle to hold these levels unless realized picks up again soon.

ETH

• ETH term structure shifting higher again, led by front end.

• Nov23 expiries up 7 vol points as realized spiked on a 12% up day.

• Rest of the curve higher in a time weighted fashion, with back-end up 2 points.

• ETH vol back in vogue as ETF narrative shifts away from BTC and into ETH.

Skew

BTC

• BTC and ETH skew realigned this week as they both hit highs above 10 vols for calls (weekly expiry) on the initial move higher, but then settled back down to around 5-6 vols for most of the curve. In the longer part of the curve, we still approaching 10 vols call premium in both assets.

ETH

• ETH skew had been holding slightly higher for calls than BTC, despite ETH/BTC trading poorly, but as we suggested, this was the options markets way of preparing for a bounce in ETH. The Blackrock ETF filing provided the spark for that bounce.

• After such a big move in a short time, it's natural for there to be some profit taking and consolidation. We do still think ETH has some explosive potential on the upside, but the timing is hard to call

• Either way, we think owning call switches in ETH vs BT has been and continues to be a good trade given the BTC ETF is pretty much priced in and unlikely to trigger a material rally past 40k in our opinion.

Option Flows

BTC

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  BTC Options volumes are up 35% to near $8Bn as spot broke higher again. Predominant flow was rolling up of calls in 24Nov and 29Dec expiries, from 37-38k into 40-45k region. Some short-dated straddles were sold on 17Nov 35500 and 01Dec 37000 (The 01Dec was against buying ETH straddles). Outright calls bought in 29Dec 45k. Protection bought via 01Dec 37000/35500 put spread.

ETH

• ETH options volumes also up around 30%, but interesting that they didn't outstrip BTC. 24Nov 2000-2100 strikes bought to cover shorts and enter fresh long gamma. 01Dec 2150 straddle bought against BTC straddle. 24Nov 2300/2700 call spread bought. 29Dec23 4500 call bought outright. In general, funds took profit on BTC upside and shifted over to ETH which help move the vol spread back to ETH premium.

Gamma Positioning

BTC

• BTC dealer gamma positioning has remained short as upside from 37-40k have been bought in 24Nov. This short positioning is keeping implied vol elevated even as realized has been relatively calm in BTC.

ETH

• ETH dealer gamma flipped negative last week and has stayed there as spot marched
  higher on the ETF filing news. Dealers appear to be short all local strikes from 1900-2200 which will keep vol firm and make gamma more likely to perform well. Supply has well and truly dried up in ETH vol for now.

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