Crypto Options: Realized Volatility Explodes

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

• Crypto realized vol has exploded higher this week as BCT advanced a massive 25% and is near all-time highs again. BTC 10d realized vol has almost doubled to the low 70s after a couple of up 8% days in the last week.

• ETH realized vol is also higher, but lagging behind BTC, at around 60%. The ETH breakout has not been quite as violent as we don't have the same relentless ETF inflows driving prices higher.

• With short-dated implied vol dragged materially higher by 15-20 vol points, we still have positive carry, but ETH stands out as the better gamma-selling candidate. Although selling gamma in crypto has been a bloodbath lately.

• Taking out all-time highs is likely to create even more retail FOMO in Bitcoin so volatility is likely to stay high regardless. We do have a few macro catalysts this week with ISM and NFP in the US and Powell speaking.

Term Structure

BTC

• BTC term structure inverting as you would expect on such dramatic moves.

• March expiries are up over 20 vols, which is huge.

• Back-end vol is also up 7-10 points as the whole vol curve re-rates higher after such massive moves.

• Call skew bid across the curve.

ETH

• ETH term structure also inverting but less than BTC by around 5 vols in the front end.

• ETH catch-up move is still possible, but BTC is in the driving seat into the halving.

• Long-dated expiries are also well-bid and holding just above BTC.

• Call skew is very firm, particularly long end, as ETH all-time highs are still way off.

Relative Value

ETH/BTC

• ETH/BTC vol spread shifted lower to near flat across the curve as BTC implied vol outperformed in the 25% rally this week.

• The realized vol spread has moved in favor of BTC once again, with a 10-day realized spread at nearly 14 vols for BTC over.

• The ETH/BTC spot spread has continued to give back its rally from a couple of weeks ago as BTC has taken the baton again. We are not far from support levels, and ETH is starting to show some outperformance today. We still like the catch-up trade on a longer-term horizon, but BTC flow dynamics are too strong to fight against right now.

• Call switch trades involving short BTC calls have not worked well this week. In such volatile markets, relative value becomes dangerous as the spreads that are normally quite stable, become more volatile too and so the benefit of using spreads diminishes.

Crypto Option Flows

BTC

• Volumes exploded 170% this week to around $15Bn with open interest hitting all-time highs. Activity on both sides with some protection buying in the form of put spreads and risk reversals in March. Also, upside trading in large clips with profit taking in March and April 60-70k calls. 28Jun24 60k calls got rolled up to 75k strike.

ETH

• ETH options volumes are up around 50% with not quite as much action as BTC. Short-dated calls getting bought in 08Mar & 15Mar. Large 27Dec24 5000/6000/8000 call fly traded(buying 6k strike). Downside protection was bought in 3200-3000 range for March expiries.

Gamma Positioning

BTC

• BTC dealer gamma oscillating around zero and currently near neutral. There are bigger forces at play than dealer gamma right now in BTC.

• Dealers appear to be long 29Mar 65k and 60k strikes which may act as goal posts into end of March expiry if prices can consolidate.

ETH

• ETH dealer gamma back down near zero as spot rises. Main short strike is 3500, but there are longs on either wing balancing out positioning. In a pull back we would expect gamma to get longer as dealers own 3200-2800 strikes for 29Mar.

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