Crypto Options: Gamma for Sale

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 

• Both BTC and ETH realized vol dropped by around 10 points this week as we had the Thanksgiving holiday and topside resistance held and spot drifted back into the middle of recent ranges.

• Implied vols got dragged lower, particularly in front-month options, as short gamma players came back hunting for THETA to earn over the expected quiet period.

• BTC carry remains positive whilst ETH is still slightly negative, suggesting BTC gamma selling may be more rewarding in BTC, although positioning dynamics have been shifting in ETH lately as some call selling appetite returned.

• Using short-dated weekly calls to systematically overwrite against long exposure has been working well recently and with the market pricing in more chance of a break higher in Jan 2024, this strategy has some scope into year-end.

Term Structure

BTC

• BTC term structure was hammered this week.

• 26Jan24 expiry was also hit but remains the "kink" in the curve as markets prefer for ETF approval news in early 2024.

• The long end of the curve was down around 1 point and seems to be quite stable around 60 vol.

ETH

• ETH term structure also shifting lower, in a similar fashion to BTC.

• The front-end of the curve worst hit, but it held better than BTC due to better recent realized vol.

• Long-end ETH vol tracking BTC levels very well as the ETH ETF story lingers in the background.

Skew

BTC

• BTC call skew holding up better than ETH this week as both assets fade off their highs.

• BTC skew is down to around 4 vol call premium in the short-end and extends to around 9 vols in the far back-end expiries.

ETH

• ETH skew has lost most of its call premium in the front expiries in 2023 but does regain a call bid in Jan 2024 onwards, with the long end showing 8 vol call premium, similar to BTC.

• Using any BTC relative strength over the coming month to enter into call switches (long ETH/short BTC) is still one of our favored plays for 2024. We would use far OTM options like 10-15 delta to reduce noise and only have exposure for a large relative re-rating in ETH which we think is being under-priced in the vol surface.

Option Flows

BTC

• BTC Options volumes continue to trend lower, down another 8% to S6Bn. The biggest clips were a seller of Jan24 32k/27k put ratio (buying the wings), a Seller of 08Dec 40k/42k call ratio (again buying the wing), and buyers of Mar24 45k calls outright. We also saw 24Nov 35k puts bought for protection and outright 40k calls bought on 01 Dec and 08 Dec.

ETH

• ETH options volumes are down around 10% this week to just under $3Bn. A few big clips made up the majority of the flows. Seller of 29Dec 2100 puts outright. Buyer of Mar24/Jun24 diagonal call calendar. Buyers of outright calls in 01Dec 2300 and 08Dec 2400 strikes. Buyer of Jan24 2600/3200 call spread.

Gamma Positioning

BTC

• BTC dealer gamma positioning back towards neutral as the drift in spot away from short-dated high strikes takes dealers less short. A move toward 40k would still flip books short as 40k strikes in early Dec got bought.

ETH

• ETH dealer gamma moved back into positive as a large chunk of 29Dec 2100 puts were sold to dealers. Positioning looks much more balanced now as traders seem to be losing faith in much movement before year-end.

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