Crypto Options Insights: Market Bets On January Rally

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, and much more to stay informed on crypto options trading.

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

Realized Vol

Realized vol popped as BTC broke 100k and not both assets are realizing in the 60s.

Implied vol was firmer by a few points in the front end but didn't keep pace with realized as we saw options sellers taking profits.

Carry is negative in BTC but remains slightly positive in ETH.

The OHLC charts show that both assets had multiple breaches of implied ranges and intraday vol is considerably higher than last week.

Whilst we likely remain choppy, the 85k-105k range is establishing itself as the potential book ends for the rest of the year.

Skew Term Structure

• Skew term structures both back into contango as front-end call premium smashed lower

• Both assets still have significant call skew in Jan25, which suggests that the market strongly believes that the consolidation doesn't last beyond December.

• Those that believe the consolidation has room towards 85-90k are being rewarded to enter bearish risk reversals in Jan or Feb25 as hedges to long holdings.

• On-chain data has shown long-term HODLers taking profit so the weaker hands may still need to be shaken out before the bull market can resume. Funding rates are still positive in the 15-20% range which indicates speculative longs.

Relative Value (ETH vs BTC)

• ETC/BTC spot has been all over the place. First, it broke 0.04 and looked like a breakout and now it's pulled back violently and back in the downtrend channel.
• ETH vol held up well and maintained a huge premium over BTC (17vols) even as BTC realized converged towards ETH. This suggests that traders fear a big catchup move in ETH towards ATH near 4800.
• The relative skew term structure reverted back towards flat as ETH upside disappointed and the 4000 break couldn't hold.

Market Outlook 

Volatility is increasing as both Bitcoin and Ethereum realize higher levels—Bitcoin moving from the 40s to the 60s and Ethereum remaining slightly elevated in the 60s. Intraday price action has been choppy, with frequent breaches of implied ranges, indicating a more volatile and uncertain trading environment. Bitcoin's implied volatility hasn't kept pace with realized volatility due to profit-taking by option sellers, leading to negative carry. Ethereum, in contrast, continues with positive carry, though slightly eroding.

The 85k–105k range for Bitcoin is expected to hold through year-end, while Ethereum shows resilience but faces challenges surpassing the 4,000 mark in the near term. Funding rates remain elevated, suggesting speculative long positions that may need a reset before a sustained bull market can resume.

For traders, Ethereum's implied volatility premium relative to Bitcoin reflects caution about potential sharp moves if Ethereum breaks key resistance levels. Strategies like covered calls on Ethereum might capitalize on elevated front-end premiums while maintaining some upside exposure. However, weaker hands exiting the market and the persistence of high funding rates signal potential risk for a short-term correction before broader stability returns.