Volatility Spikes As Crypto Breaks Down

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

Crypto realized vol spiked by around 15 points on BTC and 30 pts on ETH as supports got taken out on thin liquidity.

Implied vols responded by exploding by 20 vol points in the weekly expiry and around 10 vols in the 1 month.

Volatility carry sits at near zero and IV and RV are in line and markets remain nervous.

The inflation data this week has the potential to move rates markets, and this may have some read through for crypto.

The ETF launch continues to be pushed back, but is still expected to come imminently.

Term Structure

BTC

• BTC term structure inverted on the move down in spot.

• Short-dated vol up around 15 points.

• Back-end vols only up around 2 points

• This is a typical move when realized suddenly spikes and the curve is in steep contango

ETH

• ETH term structure moving almost identically to BTC

• Front end up near 20 vols.

• Long-dated vol up 2-3 points.

• ETH event risk for ETF launch may have been pushed to next week, but the wild swings we've seen mean that pure front-end GAMMA is in demand.

Relative Value

ETH & BTC

• ETH/BTC vol spread still holding near 15 vol premium in 1-month expiry as ETH realized vol exploded.

• The vol premium on ETH was due to anticipation of large moves on the ETF launch, but instead the asset moved more violently on the downside to flush out speculative longs.

• The ETH/BTC spot spread had a sharp leg lower into key supports reached last month and looks to be holding at these levels.

• The delay in the ETF launch is keeping the vol spread pumped and may also be the reason that spot ETH is somewhat resilient the last couple of days.

• Once we get the launch, I still expect a vol reset to get the spread sub-10 vols but it's unclear how big a spot move to expect from these levels if inflows come or not.

Skew

ETH & BTC

• Weekly put skew went bid in both assets as traders rushed for short-term protection (including myself!).

• BTC puts skew trades a little higher than ETH as the supply is coming on BTC and ETH has some potential support if inflows turn up next week.

• More of the same in the back-end skew where call premium persists as we continued to see long-term upside getting bought on the dip in spot.

• This steep skew term structure is becoming normal when markets drop as the long-term structural bull case is intact.

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