Imran Lakha of Options Insight: Buy Dips On BTC Way To Go

In this week's recap, Imran Lakha of Options Insight provides the latest insights into BTC and ETH derivatives markets. The crypto market remains in a dynamic phase, with volatility normalizing post-key events and traders adapting strategies to navigate the current range-bound conditions. Read more for insights on term structure shifts, skew dynamics, and premium collection strategies.

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

Realized Vol

Realized vol picked up significantly as markets rallied to new highs ahead of the Trump inauguration. BTC realized hit near 80 and ETH at 95.

Front end implied vols spiked initially along with realized but have since collapsed after the event has passed without any major announcements regarding crypto policy.

Carry is showing negative, but this is because of the event vol reset. We expect realized to follow lower.

The OHLC charts show ETH has been very volatile within the range testing implied move thresholds consistently.

Skew Term Structure

• Skew term structures remain in contango but BTC shifted higher as we re-tested the highs.
• BTC holds more call skew in the front end at 2 vols and moves quickly up to 4 vols in 31Jan and stays high for the rest of the curve.
• ETH skew is more neutral in the front end and gradually works its way higher up the curve to a maximum of 6.5 vols in the long end.
• These higher medium-term call skews suggest the bullish regime for crypto is expected to last until the end of this year at least. Buy the dips!

Relative Value (ETH vs BTC)

• ETH/BTC spot trending lower making another local low at 0.03 last week.
• ETH vol slipped relative to BTC as the market perceived more event risk on BTC for the inauguration.
• The curve is back to around 10 vols flat which seems quite fair given the consistently higher realized from ETH.
• Those who had the risk appetite to sell expensive-looking ETH vol have been rewarded provided they have not been delta hedging daily as we have been chopping sideways.

Market Outlook 

The crypto volatility landscape has been dynamic, with Bitcoin and Ethereum experiencing significant realized volatility spikes around key events like the inauguration. These spikes have since normalized, leading to declining implied volatility and temporary negative carry. Ethereum has been particularly volatile, testing range boundaries but remaining largely range-bound.

Term structures are beginning to stabilize, with front-end gamma coming off sharply. Skew dynamics indicate continued bullish sentiment, as core premiums remain intact across the curve. Bitcoin and Ethereum have shown divergent performance, with Bitcoin appearing stronger on a relative basis, while Ethereum's price action trends downward.

For volatility sellers, Ethereum's choppy nature has made delta hedging unprofitable, reinforcing the need for wide-range strategies like strangles or iron condors. Overall, market participants seem positioned for a consolidation phase, with a focus on managing premium collection strategies efficiently.