November 22, 2023

Crypto Options: Resilient BTC Term Structure

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

BTC realized vol staying in the mid to high 40s this week as we saw some bigger swings within the new 35-38k range. ETH realized dropped as the large 12% day falls out of the 10-day lookback window, although it remains marginally above BTC in the low 50s.
Positive carry in BTC has been reduced with implied vol stable but realized vol increasing. ETH carry remains slightly negative as implied vol fell with realized this week.
Thanksgiving this week may provide some calm and take realized vols lower still, but given the type of swings we've seen recently, we would expect implied vols to hold reasonably well in buckets that contain the ETF approval "event risk".
Those looking to pick up THETA over the holiday period will probably be better served to sell BTC options given the more positive carry and dealer positioning dynamics. 1-2 week expiries seem to be the best choice for short GAMMA players.

Term Structure

BTC

BTC term structure recovered slightly this week.

Super short-dated expiries were lower due to positive volatility carry, and big selling flows in 01Dec straddles, but 29Dec and onwards were firmer.
26Jan24 expiry was the best bid up nearly 3 vols and reverting last week's move as

ETF approval is likely by then.
The long end of the curve was up around 1 vol as some VEGA demand returned.

ETH

ETH term structure got hit this week as still no breakout above 2150.
Weekly expiry lost around 10 vols as realized returns back to earth.
Time weighted move down mirroring last week's uplift as the whole curve comes under pressure.
Term structures trading well above year averages in both assets.

Skew

BTC

The tug-of-war between BTC and ETH skew continues as BTC once again takes the lead.
BTC skew is at around 8-10vols call premium currently as it appears that a break above 38k may be imminent, which technically can extend to around 42k. This would likely bring some volatility with it.

ETH

ETH skew on the other hand has faded from its highs, particularly in the front-end expiries. We now see only 4 vol call premium in the front which extends to 8 vols in the back end.
We still think owning call switches in ETH vs BTC 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. ETH has much more room to run if it breaks 2150.

Option Flows

BTC

BTC Options volumes down 15% as spot refuses to break above 38k resistance yet again. Similar themes from last week where put spreads were bought in 24Nov to protect a drawdown. Calls continue to get rolled from Nov and Dec expiries into higher strikes in Dec and Jan, with the January timing looking most likely for ETF approvals. A far OTM calendar diagonal was sold in Mar24/Jun24.

ETH

ETH options volumes down only 5% this week. Some fresh VEGA selling flows as 24Nov 1700 calls get bought back and Jan24 and Mar24 calls get sold on 2400-2500 strikes. 24Nov 1900 puts and 2100 calls get bought. 29Dec23 2200 and 2300 calls bought. Jan24 2000 straddle sold. Wingy upside bought in Jan24 4400 calls.

Gamma Positioning

BTC

BTC dealer gamma positioning accelerated lower into last Friday's expiry but has since recovered to near flat on the week. Dealers still get shorter above 38k where calls have been bought in Nov and Dec. Main dealer long strike is 36k on the downside, which may act as support.

ETH

ETH dealer gamma declining steadily for the last month, as we see more balanced flows. Dealers remain short 1900-2100 strikes for this Friday which may keep things choppy. Very different landscape on ETH compared with most of 2023.

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