Crypto Options: Vol Plummets Ahead of ETH ETF Trading

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.

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

Realized Volatility

Realized vol in crypto has fallen off a cliff this week as both assets have 10d realized back in the 30s.

Implied vols in the 1-month bucket dropped around 2 vols in both assets but weekly BTC vol firmed up as it had been crushed already and we have some important macro events upcoming.

Carry is deeply positive for both names, and this makes selling gamma particularly attractive for those expecting markets to stay rangebound.

We wouldn't be surprised if these ranges held for a couple more weeks as we await the start of ETH ETF trading.

Any short-vol bets should be covered with wing protection at these low-vol levels in our opinion.

Term Structure

BTC

• BTC term structure shifting lower in a more parallel fashion.

• 7-21 Jun expiries were unchanged to higher as gamma has been oversold.

• Even back-end vol is only slightly softer.

• Skew recovering slightly for calls across the curve.

ETH

• ETH term structure continues to collapse into a steeper contango.

• Weekly vol dropped near 10 points as ETH realized vol quickly converges with BTC.

• The rest of the curve was lower in a more weighted fashion.

• ETH calls in the front end caught a bid, but longer term drifting back a touch.

Relative Value

ETH & BTC

• ETH/BTC vol spread pulled back some more in the front end as realized vol converged with ETH spot stabilizing around 3800.

• The whole curve now sits in the 8-12 vol range with 1-month the high point due to anticipation of moves around the ETF launch.

• The ETH/BTC spot spread consolidating in a tight range and looks like the calm before the next storm.

• Any pull back in the vol spread towards 5 vols looks like a good entry for call switch trades given the near-term setup.

Skew

ETH & BTC

• Slight uptick in call skew in the front-end expiries for both assets as ATM vol grinds lower with realized but traders want exposure in case of an upside break. Hedging downside doesn't appear to be a major concern given the stronger price action.

• ETH call skew holding its premium over BTC across the whole term structure as the catalyst remains with ETH for now and most traders expect a sizable up move once the flows start to arrive.

• Geopolitics also appear to be softening a little, which takes away some of the "digital gold" case to own BTC over other crypto assets At this stage of the cycle where we expect rate cuts to start from Canada and Europe, the bitcoin dominance looks fragile and ALT leadership is becoming more likely in our view.

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