May 29, 2024

Crypto Options: ETH Volumes Surge Post ETF

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

The crazy wild swings from last week have calmed down and crypto realized vol is settling back to normal. BTC 10d realized is back to 45 and ETH remains at 90 as the 10d window still contains the huge 20% rally. Shorter-term metrics have been rolling over with 7d back in the 70s.

Implied vols have been hammered as the event risk has passed now that the ETH ETF has been approved. Markets are now expecting a leg higher once trading begins in 4-6 weeks but until then we may be in a holding pattern around 4k.

BTC carry is still slightly positive and selling gamma here has been the safer options for THETA hunger vol traders.

Vol of vol in ETH has been huge and clearly chopped up many traders in the last couple of weeks.

Implied vol tends to lead realized vol, and the ETH options market is pricing in a calmer period going forward.

Term Structure

BTC

BTC term structure shifting lower.
Apart from front weekly options, we have seen a drop across most of the curve.
June was the worst hit, down 5 vols whilst the long end only lost 1 vol.
Skew moved lower as we once again rejected the highs.

ETH

ETH term structure collapsed back into contango from deep inversion.
Weekly vol dropped near 20 points after the ETF approval news was confirmed.
The rest of the curve giving back much of last weeks gains. Long term vol was unchanged.
ETH calls holding a relative bid as inflows expected to drive next leg higher over coming months.

Relative Value

ETH & BTC

ETH/BTC vol spread reset lower from the crazy levels of last week. The spread still remains elevated versus recent history, but it looks like ETH may be driving the narrative for the next few months.
Front-end spread trades at 16 vols and then steadily decreases to around 8 vols in the back end. Realized spread still huge on both 10 and 30d timeframes.
The ETH/BTC spot spread continued its move higher, back to 0.057. The obvious resistance area is around 5% higher at 0.06 where we topped out earlier this year.
If ALT season is starting and all the regulatory developments lead to Wall St adopting crypto in a bigger way, this ETH/BTC spread is more likely to persist above 10 vols like the old days.

Skew

ETH & BTC

Divergence in skew moves between BTC and ETH this week.
With BTC unable to break through the top of its range at 72k, we saw put skew return marginally in the front end of the curve. The rest of the curve remains in call premium but has been drifting lower.
ETH skew on the other hand has remained firmly for call across the curve. As the ETF approval news didn't spark a huge leg higher, we saw calls hold up well as traders still expect the upside to come eventually.
It looks like we may be in for a period where ETH call skew trades over BTC call skew for a while as the narrative has once again switched.