Crypto Options: ETH ETF News Sets Vol Alive

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

This week Imran Lakha walks us through some key points in the crypto options market.

Realized Volatility

Crypto realized vol had been ticking along in the high 40s as markets were moving higher in quite an orderly fashion post-US CPI and along with bullish stock markets.

Implied vols were trading at a small premium to realized, giving positive carry to the gamma sellers.

Yesterday's news that ETH ETFs may suddenly get fast-tracked and approved due to an SEC U-turn from political pressure has set crypto markets alight, taking ETH up nearly 20% in a single day. This shock move has taken 10d ETH realized vol back into the 80s, although BTC remains more muted.

Event risk is well and truly back in crypto markets and ETH vol will stay elevated until we get a decision or more clarity on the situation.

I find it strange that some ETFs could get approved and not others so I imagine the SEC will want to avoid a lawsuit, but let's see how it plays out.

Term Structure

BTC

• BTC term structure shifting higher in a parallel fashion

• Most maturities up 4-5 vols as positive spot/vol correlation returned

• On a break to new highs, there is still plenty of room for vol to pick up in the front end.

• Skew moved higher for calls as you'd expect.

ETH

• ETH term structure inverted again on the huge price surge.

• Weekly vol up near 40 points versus back end up 6 vols.

• Event risk is high now and the move we just saw would have caused a lot of pain for gamma sellers. This should keep vol elevated in the near-term.

• The whole curve flipped back into call skew, led by the front end.

Relative Value

ETH & BTC

• ETH/BTC vol spread exploded higher after the shock repricing in ETH yesterday.

• Front end spread has blown out to above 30 vols, reminiscent of the "Merge" days. This is clearly justified given the size of the daily move and the likely price impact of ETF flows, based on what we saw from BTC.

• The ETH/BTC spot spread sharply recovered to the 0.052 key level, but easy could go another 20% higher to the levels reached in January.

• We were wrong on ETH gamma being a sell. The game has changed, be prepared for anything when you sell vol. Those who size positions correctly can survive moves like this. Those who over-leverage get wiped out.

Skew

ETH & BTC

• Skew seeing a big shift back into call premium with ETH catching up to BTC.

• Front-end ETH skew got close to 20 vols for calls but has since drifted back lower back to around 10 points. The curve is still inverted with ETH short term call skew steeper than long term (which has also moved higher to be in line with BTC)

• BTC skew has been more stable and BTC skew has been more stable and whilst shifting into call premium, it has not managed to invert. Therfore, front end trades around 3 vols and back end at 6 vols for calls over.

• The ETF event risk will keep ETH skew pumped this week, but if we see more spot upside back up to 4000 as the ETF gets priced in, then skew may come back.

Crypto Option Flows

BTC

BTC option volumes are up 40% to $7.9Bn. Mainly bullish flows on BTC as spot charged back above 70k. Short dated outright call buyers in the 65-70k range.

Call spreads bought in June 70k/85k and December 100k/120k. We saw some isolated bearish risk reversals in Jun 60k/80k strikes.

ETH

ETH volumes were flat at 3.5Bn last week, but so far this week, we've already seen $2.7Bn notional traded on the massive spike. Before the move, we had seen selling of May calls as usual in the 3000-3100 zone. Since then, we've seen 31 May short of 3300 calls rolled up to 4400 calls.

Buyers of outright 4000 calls on 31 May. Buyer of 28Jun 4000/5000 call spread

Gamma Positioning

BTC

• BTC dealer gamma has moved back up towards neutral as spot rallied to 70k. There are short strikes built up at 75k which would take dealers short again if we made new highs.

ETH

• ETH dealer gamma has become very positive on the rally up to 3700. Lots of long strikes stacked up between 3300 and 4000. This shows that dealer gamma is not big enough to hold that market when major spot impacting news hits the tape.

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