Imran Lakha of Options Insight: Volatility Fest In Crypto

In this week's recap, Imran Lakha of Options Insight provides the latest insights into BTC and ETH derivatives markets. The crypto market remains in a dynamic phase, with volatility normalizing post-key events and traders adapting strategies to navigate the current range-bound conditions. Read more for insights on term structure shifts, skew dynamics, and premium collection strategies.

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

Realized Volatility

Realized vol grinding higher on BTC from mid-40s to mid-50s as spot broke back below 100k. ETH was far less orderly and spiked to 50 vols to 120%.

Front end implied vols reacted as you'd expect on the weekend move, but already reverting back down fast.

Carry remained small positive on BTC but flipped very negative on ETH as it dropped a quick 20% on massive liquidations.

The OHLC charts show bother assets testing implied ranges on the downside from Friday onwards but ETH really breaking down violently.

Skew Term Structure

• Skew term structures steepened into an even deeper contango as puts went bid due to the violent breakdown triggered by Trump's tariffs.
• BTC front-end skew went to a 5 vol put premium and ETH hit 10 vols before both mean reverted back to around 2 vols for puts.
• The back-end skew didn't budge as usual and remains around 5-6 vols for calls in both assets.
• Once again, the skew is telling us that this is likely to be a short-lived correction according to options players.

Relative Value (ETH vs BTC)

• ETC/BTC spot plummeted below key support at 0.03 on the liquidation move overnight.
• ETH vol outperformed by around 20 vols taking the spread to 30 vols in the front end. Realized spread has been way higher around 60 points.
• The curve reverts back to around a 10 vol spread from Mar25 onwards and suggests the market expects this to be a one-off liquidation event rather than ongoing excess ETH volatility.
• The skew relative value curve is around flat out to Jun25 and then moves up to around 1 vol which makes ETH calls trade above BTC. It is surprising that the front end puts don't hold much more premium in ETH.

Market Outlook 

Bitcoin Strength, ETH Volatility: Bitcoin realized vol has grinded higher from the mid-40s to mid-50s, while ETH has seen extreme realized volatility. The massive front-end implied volatility spike over the weekend has since retraced significantly.

ETH Carry Turns Negative: Bitcoin still holds marginal positive carry, but ETH is deeply negative due to its sharp realized volatility increase. This suggests ETH could still see 10% swings in either direction as it searches for equilibrium.

Options Market Signals: Skew has mean reverted, and options pricing suggests the recent sell-off was more of a short-lived liquidation event rather than a sustained downtrend. The term structure has inverted, particularly in ETH, but the back-end skew remains stable, supporting a still-bullish long-term view.

Volatility Spreads: ETH front-end vol spiked 20 points higher than BTC, pushing the spread from 10 to 30 Vols. However, this is seen as temporary, with the market expecting volatility normalization by March expiry. The put skew remains surprisingly low, reinforcing the idea that the worst of the flash crash may be over.

Overall, while short-term volatility remains high, the options market suggests a continuation of the bullish regime, with Bitcoin looking stronger than ETH in the near term.