Crypto Options: Low Vol Ahead of US CPI

Imran Lakha's mid-week market recap covers key trends in the crypto options market, including decreased realized volatility, stable BTC term structure, and ETH term structure declines. He also highlights short gamma trade opportunities and significant option flows in BTC and ETH.

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

Realized Volatility

• As we outlined last week, realized vol came back down to earth as markets drifted back toward the low end of the range on light news flow.

• Implied vols had already been trading cheap and so have not moved much this week. They are also likely holding a slight bid for US CPI data due on Wednesday after which we may see some more vol selling.

• Carry has flipped back to positive across both assets, making short gamma attractive again.

• While there is the risk of a break lower on CPI, we think structuring short "upside" gamma trades either via call calendars or short-dated call condors makes sense.

• Long calendars haven't done much yet, but still look sensible, especially on ETH.

Term Structure

BTC

• BTC term structure is nearly unchanged with only small moves across the curve.

• Weekly vol had a pop ahead of CPI data.

• September was the most bid part of the curve.

• Skew moving back towards puts in the front couple of months but stretching to a higher call premium in the back end.

ETH

• ETH term structure grinding is lower by around 1.5 vols.

• July and Sep outperform slightly, suggesting these will become the new "event" buckets.

• Long end softer by 1-2vols.

• Weekly skews were better bid for puts again as support gets tested, but calls bid from July onwards.

Relative Value

ETH & BTC

ETH/BTC vol spread pulled back a bit from highs as realized spread comes back down below 5 vols and ETH spot struggles on a relative basis.

From 60 days out, the curve is priced well at 5 vols for ETH over BTC. We would still rather own that spread at those vol levels, but the conviction on spot is not there yet, and it still looks likely that BTC will lead any pop in the near term, given the stronger price action.

The ETH/BTC spot spread remains near recent lows but is losing downside momentum.

ETH gamma does look relatively expensive right here, so that would be our preferred place to earn some THETA.

Skew

ETH & BTC

• Skew has been more subdued as markets stayed in the range and fear of a violent downside break has subsided.

• Also put protection was monetized the week prior which took the dealers less short downside vol.

• The skew term structure is similar in both assets with flat or put premium in the front end and then call premium from 2 months and longer.

• We would expect the July-Sep call premium to hold up well if that is becoming the next ETF "event" bucket, so owning upside in that part of the curve versus selling others makes sense.

Crypto Option Flows

BTC

BTC option volumes down 35% $5.5Bn. With vol drifting lower and CP| catalyst this week, block trades saw mainly options buying in BTC. Puts from 60k and below were bought for protection, whilst 65k and above calls were lifted on rallies. Most flow is concentrated in May-Jun expiries to get the best leverage to premium.

ETH

ETH volumes down 40% to 3.5Bn. Puts dominated the flow. Large clip of 31May 3000 puts were bought in $2m premium. We also saw lower strikes active out to June expiry. 28Jun 2900/2700/3400 put spread collar also trading as a classic protection trade.

Gamma Positioning

BTC

• BTC dealer gamma got shorter this week, as flow was dominated by options buying. The largest concentration of shorts is around 65k in 31May but 28Jun shorts are scattered around the map, so positioning will be stable.

ETH

• ETH dealer gamma heading back towards neutral as systematic call selling flow meets put protection demand. Positioning get significantly longer if we rally back to 3300 and is likely to flip to short on a break of 2900.

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