Crypto Options Insights: BTC Breaks Resistance As Vol Picks Up

In this week's recap, Imran Lakha of Options Insight provides the latest insights into BTC and ETH derivatives markets. Explore trends in volatility, term structures, and much more to stay informed on crypto options trading.

We are back this week with Imran Lakha walking us through some key points in the crypto options market.

Realized Vol

Crypto realized vol 10 points in BTC to 52 and 5 points in ETH to 60.

Implied vol was higher but unable to keep pace with realized vol.

Carry is negative in both assets by 6-9 vols (15% of ATM vol)

We can from the OHLC charts that the upside moves were breaking the implied moves bandsand making it hard for short gamma players. Hence the bid to vol.

Trump odds moving up seems to be a primary factor for the strength in crypto as well as Uptober seasonality kicking in for the second half of the month.

Middle East headlines have taken a back seat recently which has also helped risk sentiment.

Skew Term Structure

• Skew term structures flattening as short-dated calls catch a bid from traders trying to chase the break higher. Long-dated calls softening as upside gets rolled down into shorter maturities.
• The entire curve is now in call skew for both assets, but the premium is nowhere near highs. We would need confirmation of the break this week to see a higher call skew, likely driven by the front end.
• Our view on downside convexity being cheap still holds and so put ratio back spreads still allow investors to have some hedges on without committing any delta exposure.

Relative Value (ETH vs BTC)

• ETH/BTC spot is back to the lows but not accelerating lower. Still, it is very hard to get bullish above this cross from looking at the chart. Some arguments of coiling pattern and bullish divergence.
• ETH vol continued to come down relative to BTC, taking the vol spread to 4 vols in the front end. The back-end spread is still around 7 points.
  The vol spread below 5 looks decent value so we cover shorts in ETH vol at these levels.
• The relative skew term structure shows ETH puts a slightly better bid as a downside break-in
  ETH/BTC from a technical standpoint is still possible.

Market Outlook 

The crypto market is seeing a bullish trend as volatility rises. Realized volatility (RV) for Bitcoin has climbed to 52, while Ethereum is up to 60, though the pace is slower. Negative carry exists for both Bitcoin and Ethereum, but the market anticipates significant moves around key events, especially leading up to the elections. Term structures have shifted higher, with a notable spike in short-term volatility for assets like Bitcoin and Ethereum. Skew is flattening, indicating a stronger demand for call options across time horizons, reflecting optimism in the market. However, Ethereum's performance is relatively weak compared to Bitcoin due to political catalysts driving Bitcoin’s momentum.