Crypto Options: The Moment We've Been Waiting For

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

• Finally, the moment the whole crypto market has been waiting for seems to be coming imminently, as indications that Blackrock's BTC spot ETF will be approved spur huge buying volumes and take BTC up to 34k.

• Realized vol in BC has exploded back into the 70s and reminded all those short gamma players that trading crypto vol is not for the faint-hearted. ETH playing second fiddle again, as it moves higher albeit less aggressively taking realized only up to 45%.

• Implied vol understandably caught a strong bid 1-month maturities up 15-20 vol points and weekly vols doubling on the week. This is an incredible repricing of crypto vol in less than a week and we are very curious to see how long it takes for gamma sellers to return as many would have been liquidated.

Term Structure

BTC

• BTC term structure catching a huge bid, driven by the front end. 03 Nov - 29 Dec expiries were up around 20 vols. Mar24 onwards moving more time weighted with smaller moves but still a very healthy increase in vol.

ETH

• ETH term structure seeing similar vol moves, even as spot didn't explode as much as BTC.
• Front-end vols are up in the 15 vol range and the back is up 7 points. There is still a dip in the middle of the ETH term structure around 1-2m expiry where a lot of calls have been sold previously.

Skew

BTC

• On the break higher, we did see call skew explode which is intuitive as people chase the upside move. The whole curve was trading at 6-10 vol call premium yesterday as BC broke above 31k.

• Now that we have moved to 34k in a matter of hours, it's interesting to see that the weekly skew has somewhat collapsed and even the mid-term skew is back to 2 vols from highs of 7. This is with the BTC spot holding steady up at 34k. This type of skew divergence could be an indication that the rally is in need of a pause or pullback. It may also be a function of some fresh longs being added with protection, as Gensler is speaking tomorrow and may confirm the ETF approval.

ETH

• ETH call skew has held up better, as the whole curve trades at 5-10 vol call premium. This relative strength in ETH call skew suggests the options market thinks a catch-up trade in ETH may be likely, whilst much of the BTC news could be priced in.
• We do think this move in BTC is front-running the institutional flows that will be coming, and so pullbacks will get bought. We also agree that once the news is confirmed, the focus may shift to ETH because it presents better value and has been underperforming all year and ETH/BTC is near June 2022 lows.

Option Flows

BTC

• Volumes in BTC options exploded 85% this week as spot broke to new YTD highs. With the huge pop in vols, we are seeing profit taking in 24 Nov 30k and 31k calls, and 29 Dec 34k/40k call spreads. Overwriters have been short covering 24 Nov 30k and 29 Dec 29k calls. October calls have been active in two-way flow as gamma players recalibrate to the new regime of volatility.

ETH

• ETH options volumes were down until the last acceleration higher yesterday brought large call buying flows in 24 Nov23 1700 and 1650 calls. Other flows were mainly call buyers in 29 Dec with 1800 strike the largest. Some fresh longs and some short covering from overwriters. 27 Oct 1600 calls were sold and a 24 Nov 1550/1800 bearish risk reversal was bought (one of the few bearish trades on the board).

Gamma Positioning

BTC

• BTC dealer gamma positioning flipped short as we broke above 30k. It has been stable since yesterday as profit taking of call and call spreads comes in. The main long strikes are coming from 270ct 32k and 34k strikes so further upside will take dealers shorter again.

ETH

• ETH dealer gamma spiked lower and briefly into negative territory on the initial pop-in spot. It has now flipped back into positive as dealers own the 1800 strike for 270ct which we are trading near. If ETH continues to rally, the long gamma will dissipate.

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