Crypto Options Analytics, April 28, 2024: Yen Trade & Crypto Analysis

USA Week Ahead:

1. Tuesday 9:00am - S&P Case-Shiller Home Price Index

2. Wednesday 8:15am - ADP Employment

3. Wednesday 2:00pm - FOMC Rate Decision + 2:30 Press Conference

4. Friday 8:30am - NFP

Disclaimer: Nothing here is trading advice or solicitation. This is for educational purposes only.

Authors have holdings in BTC, ETH, and Lyra and may change their holdings anytime.

Macro Recap

This week has a full schedule for US economic releases. 

Wednesday we have the FOMC rate decision, largely expected to be a hold, but having an embedded tail-risk from hawkish language/guidance, given the most recent CPI data being “hot”. 

Then, on Friday, we have the Employment report (NFP), which will likely be a big market mover considering that NFP reports have been beating expectations recently. A poor NFP report would be very bullish for bonds and gold.

Chart: (CME FedWatch Tool, for May 1st, 2024 FOMC decision) 

Last Friday we had the PCE release - the Fed’s preferred inflation measure - come in at 2.7% YoY vs 2.5% prior. This is in part due to revisions higher for Jan and Feb. Overall, nothing major but moving in the wrong direction for inflation targets. 

Speaking of inflation and rates, Japan’s Yen is currently continuing to have its moment. Short-¥ is something I’ve been obsessed with since 2011. 

For more info on the Yen trade check this video. 

I do think there’s an asymmetric trade available with short-JGB futures (or the smaller SGB) contracts here. Japan’s response to the ¥ devaluing has two potential routes:

1. Spend FX reserves to defend Yen
2. Allow JGB yields to rise (to close the USD/JPY rate differential) 

Historically, I’ve preferred the Yen trade of the equation (not JGB rates) but the Yen leg is far-advanced in its move now. 

Chart: Investing.com JGB Futures

BTC: $63,580 (-1.6% / 7-day)

ETH :$3,310 (+5.3% / 7-day)

SOL :$141.28 (-4.9% / 7-day)

Volatility continues to tick down for crypto, especially as BTC seems to be consolidating within the $ 60k handle for now. 

We pointed out last week that RV is in the upper 12-month range and without large ETF inflows to get BTC to explode higher, the upside spot likely only “grinds higher” at best.

Chart: 30-day RV BTC (orange) ETH (Purple)

The Relative volatility between ETH and BTC is interesting to me now. I wrote a piece for CoinDesk called Halving: Sell-the-news or Buy-the-Rotation, that argues that headlines will now shift to ETH, given the spot ETF, Consensys lawsuit, and ETH supply dynamics.

With the historical context of ETH being a higher Beta asset and having a lower market cap, it’s rational to expect some long-term mean reversion to higher ETH IV (VS) BTC IV. Another interesting opportunity is the relative skew. 

Chart: BTC vs ETH volatility smiles

Notice the kink in <15∆ put skew for ETH that isn’t present in BTC. 

A large part of that relatively bearish skew could come from the ETH call wing "volatility sellers”. 

If ETH has more “jump-risk”, the OTM wings should both have kinks to reflect the relatively higher kurtosis, but ETH call sellers are smashing the call wing, so now the ETH surface looks to have a bearish skew. 

Chart: ETH Gamma Profiles

We can see the Gamma profiles that reflect dealer inventories reflect this thesis too. Call options are being sold to dealers by a large amount. 

In the end, this gives the impression that ETH has a bearish RR-Skew, which lines up an interesting opportunity in my eyes. 

Despite volatility sellers likely persisting in ETH, these flows don’t necessarily affect the “realized” reality.

Should bull markets resume and ETH have some positive Spot ETF developments, I believe covered-calls sellers are being short-sighted and providing good entry for speculators here to buy ETH OTM calls, either outright or through shorting the RR-skew. 

Paradigm's Week In Review

BTC -1.66% / ETH -0.28% / NDX +3.42%

Paradigm Top Trades this Week 👇

Weekly BTC Cumulative Taker Flow 🌊

Weekly ETH Cumulative Taker Flow 🌊

BTC Cumulative OI 

ETH Cumulative OI

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BTC

ETH

The Squeethcosystem Report

Crypto markets remained active, ending the week with solid gains. ETH ended the week +4.66% and oSQTH ended the week at +7.08%.

Volatility

oSQTH IV found its way lower throughout the week, ending in the 70s.

Crab Strategy

Crab saw gains ending the week +3.90% in USDC terms.

Twitter: https://twitter.com/opyn

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AMBERDATA DISCLAIMER: The information provided in this research is for educational purposes only and is not investment or financial advice. Please do your own research before making any investment decisions. None of the information in this report constitutes, or should be relied on as a suggestion, offer, or other solicitation to engage in, or refrain from engaging, in any purchase, sale, or any other investment-related activity. Cryptocurrency investments are volatile and high risk in nature. Don't invest more than what you can afford to lose.