Crypto Options: Ethereum Volatility Surges

In this week's recap, Imran Lakha of Options Insight provides the latest insights into BTC and ETH derivatives markets. Explore trends in volatility, option flows, term structures, gamma positioning, and much more to stay informed about the dynamic world of crypto derivatives trading.

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

Realized Volatility

• Realized vol has been stable this week in BTC at around 50% but ETH has picked up as it had a huge surge yesterday taking realized back up to 65%.

• Implied vols have stayed relatively elevated and moved even higher over the weekend as spot levels looked to be breaking higher again. This leaves volatility carry still very positive, especially in BTC where realized vol has been more benign.

• US CPI data and geopolitical tensions have kept implied volatility elevated in stocks and commodities and so this may also be factoring into the lack of appetite to sell gamma right now.

• With the mid-April halving date being seen as a "vol event", we may see implied vol stay rich and provide a big vol reset opportunity for later in the month. We think selling short-dated BTC vol via owning calendar spreads looks attractive.

Term Structure

BTC

• BTC's term structure is stable this week.

• April-May expiries were firm ahead of the halving.

• Long-dated vol drifting lower by around 1 vol point.

• Skew seeing bids come back for front-end calls whilst back-end calls were slightly lower.

ETH

• ETH term structure flattening more than BTC.

• 19-26 Apr buckets were up 2 vols.

• Longer-end options were better offered with the far end down 2 vol points.

• Skew flipped back calls across the curve as short-dated calls got lifted. Long-end calls softening in line with BTC.

Relative Value

ETH & BTC

• ETH/BTC vol spread staying at a 5 vol premium in the front end but drifting slightly in the back.

• The realized vol spread is still massively in favor of ETH by 10-13 vol points and suggests that BTC vol is elevated due to the halving.

• The ETH/BTC spot spread had been trading poorly but has bounced strongly from the January lows.

• For now, it looks like the support has held in the spread as ETH led the rally this week. We still like ETH longer term, but aren't yet convinced that it will outperform BT in the months following the halving without a specific catalyst like an ETF approval.

• As mentioned previously, we would use any overshoot on the downside to enter longer-dated calls or call spreads with year-end type expiries.

Skew

ETH & BTC

• As key support levels 65k(BTC) and 3200(ETH) were held last week, we started to see a shift back towards calls in the flow.

• Both skew curves saw similar moves with call skew catching a big bid in the front end and flipping both assets back into call premium as puts were sold in favor of buying calls.

• We have a much more uniform skew term structure now with 2-3 vol call premium in the front and moving up to around 6 vols in the back-end expiries.

• Back-end calls have been very well bid lately, but as we've seen long-dated vol better offered in general, this has also filtered down into call skew softening in the back end. Essentially all the VEGA demand in the long end comes for the upside in crypto.

Crypto Option Flows

BTC

Volumes were small down to $7.5Bn even as BTC broke back above 70k. The largest clip was a 26 Apr 64k/71k bullish risk reversal (halving trade).

We also saw outright option buying in April-Jun 75k-85k calls and long-dated buyers of 27De 100k and Mar25 200k calls. April and May's outright puts were also bought for protection.

ETH

ETH volumes are flat at around $5Bn. 26Apr expiry call put spreads sold and call spreads bought. Outright 3300 calls sold in very short dates (12 Apr & 19 Apr). May and June Calls are active in call spreads and call calendar forms.

Gamma Positioning

BTC

• BTC dealer gamma remains negative as wee see that dealers are short most strikes between 65k and 75k in April expiries. This should keep things choppy and explains why dealers are refusing to let implied vols come down materially before the halving.

ETH

• ETH dealer gamma keeps getting longer on the upside as overwriters sell calls, but this hasn't stopped ETH from having some violent moves up. If we were to move back below 3600, the gamma would dissipate quickly and be less supportive to spot.

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