Crypto Insight: Front-End Implied Vol Elevated

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, relative value, and much more to stay informed on crypto derivatives trading.

On a bit of a hiatus but we are back this week Imran Lakha walks us through some key points in the crypto options market.

Realized Volatility & Term Structure

Crypto realized vol was more stable this week with BTC  ticking up slightly and ETH settling down but still almost 10 vols over BTC.

Front-end implied vols were materially higher as not only did spot break down before the recent recovery, but anticipation around this week's presidential debate is high.

Carry is positive for both assets at around 6 vols (approx. 10%).

The stair step shape in the term structure remains for the election bucket on 08 Nov, implying around a 10% election move.

Skew Term Structure

• Both assets remain in a steep skew term structure which shows that puts trade at a premium in the front end and calls have the back-end premium.

• This way of observing the skew allows us to gauge the market sentiment across different time horizons.

• Front end skew had got a deep at 7-10 vols for puts on the spot break down but have since recovered with spot.

Relative Value

ETH vs BTC

• ETH/BTC spot remains heavy but has not broken down below 0.04 support for now.

• With BTC having the potential catalyst from the election debate, we would not be in a rush to buy this spread either from a DELTA or VEGA perspective.

• The front end vol spread has dropped to 6 vols (below realized) in anticipation of a BTC move on the election debate.

• The relative skew term structure is showing that ETH puts remain favoured due to the poor relative price action but longer-term ETH calls have started to pick up on a relative basis.

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