Crypto Options: Front End Put Skews Heat Up

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 the crypto options market.

Realized Volatility

• Despite a sizable correction from the highs, crypto realized vol has been falling throughout the week, with BTC back down to 72% and ETH down to 78% on a 10-day basis.

• Implied vol has also been dragged lower as calls got dumped on the break of support levels.

• BTC volatility carry is around zero, suggesting options are well priced whilst ETH is still in slightly negative territory as realized remains higher in the largest ALT coin. SOL was the real mover this week as it sky-rocketed from 150 to 210(40%) and then came back to currently sit at 180.

• As more liquidity comes into SOL options, we will be doing analysis and tracking the volatility to be able to spot opportunities.

• Crypto is once again a macro asset as ETF flows no longer the only game in town. FOMC on Wednesday could move rates if the dot plot gets revised up and this would likely impact crypto, at least in the short term.

Term Structure

BTC

• BTC term structure flattening back into contango.

• Front expiries down by 7 vols into the high 60s.

• Back of the curve up by a few vol points on Sep24 call buying flows.

• Skew turned dramatically south in the front end which is now deeply in put premium.

ETH

• ETH term structure

  saw similar moves but smaller in magnitude.

• ETH's front end was down 5 vols as it had larger moves than BTC.

• Long-dated expiries were firmer by 2 points and sit around 80% implied vol.

• Skew-term structure steepening with front expiries in deeply put premium but long term in deep call premium.

Relative Value

ETH/BTC

• ETH/BTC vol spread is stable in the front end but shifting back down to zero across most of the curve with even a small BTC premium in the long end. Realized vol spread still in ETH premium by as 4-6 vols depending on which term.

• The ETH/BTC spot spread has tanked, back towards the low end of the range as ETH led the move lower on fears of the ETH ETF being rejected.

• We highlighted last week that the spread no longer offered any alpha due to the high volatility and we were able to lock in some gains before things reversed. The ETH skew move last week was a red flag that we paid attention to.

Crypto Option Flows

BTC

BTC option volumes were small down but still around $14B. Two-way flows as traders still believe in the halving rally. Buyers of 26Apr 70k/90 call spreads and 27Sep 90k outright calls. Mar/Apr 75k call calendars bought. Protection buying came in on the break lower below 70k in the form of 29Mar 65k/55k put spread and out right puts. Bearish risky bought in 26Apr 63k/90k for protection.

ETH

ETH volumes drifting lower slightly to $7.4B. More aggressive put buying seen in 29Mar 3600 to 3100 strikes. Calls being sold as we broke down but also seeing fresh longs added to buy the dip. 26Apr 5000 calls and 4000/5000 bullish risk reversal bought. Big on-screen cover of 29Mar 2600 calls and then re-selling of higher strikes in the 3900-4500 area.

Gamma Positioning

BTC

• BTC dealer gamma flipped into short as some put buying came in and spot sold off. Dealers are long 29Mar 65k and 60k strikes so after this week the positioning should get longer if spot keeps drifting.

ETH

• ETH dealer gamma moved back up into positive territory as spot sold off back down towards dealer long strikes at 3000 and 3200. There seems to be a skew position where dealers are short upside to 3600 and so we may find ETH is better supported in the 3000-3200 range but in a rally, we may rip back through 3500 quickly.

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