Crypto Options: Realized Vol Dramatically Higher

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 jumped dramatically higher over the weekend as geopolitics have escalated between Iran and Israel. BTC 10d realized into the 70s and ETH almost touched 100.

1-month implied vols are softer whilst weekly vol has held up, initially for the halving, but now because the gamma is working so well. We were expecting a vol reset post-halving, but now it will all depend on the conflict in the Middle East.

US CPI data last week didn't trigger massive crypto volatility, which we correctly predicted, but the macro correlations have been rising due to the risk of a global war.

ETH once again outperformed in terms of gamma, with deep negative vol carry versus BTC remaining small positive. Right now, selling gamma is a dangerous trade, but being short vol on the upside looks more favorable.

Term Structure

BTC

• BTC term structure inverting slightly.

• April expiries were higher as the high realized vol keeps a bid for GAMMA.

• The rest of the curve shifts lower from May 24 onwards.

• Skew flips aggressively into put premium as crash risk gets hedged.

ETH

• ETH term structure inverting more than BTC due to higher realized.

• Weekly vol up 20 points to near 100.

• Mid-curve seeing some selling as May calls got sold.

• Skew in put premium out to Jun24 but the long end still for calls.

Relative Value

ETH & BTC

• ETH/BTC vol spread moved up in the weekly bucket to around 10 vols as ETH realized vol exploded and outperformed BTC by nearly 30 points. The rest of the curve not responding and holding a small premium for ETH vol of around 2-3 vols.

• The medium-term vol spread is looking cheap at these levels and the price action is showing that ETH has got its beta back. Opportunity exists for volatility players here.

• The ETH/BTC spot spread has traded below support, and this does open up a lot more downside, which would be consistent with a risk asset meltdown that could be triggered by more war escalation in the Middle East.

• We see value in owning ETH straddles vs BTC straddles in May-Jun24 expiries given the high realized spread and the fact that the halving is passing this week.

Skew

ETH & BTC

• As realized vol spike to the downside for a change on the back of war fears, we saw a violent reversal back into put skew in the front expiries. Both BTC and ETH have around 10 vol put skew in the front weekly expiry as investors brace for the reaction from Israel.

• The skew curves have become steep again with put skew in the front and call skew in the back. BTC has done a better job of holding its call skew in the backend as long-dated call buyers saw last week. ETH upside was fading, taking long-end call premium back below BTC for the first time in a while.

• Once again, we have seen the speed at which short-term skew reacts to spot moves in crypto and if spot recovers we will likely see the same thing again.

• The fact that spot/vol correlation has flipped in the last leg down, suggests that in an initial bounce, we should see vol come lower, especially in the front end, which makes call ratio structures the favored play for bullish traders.

Crypto Option Flows

BTC

BTC option volumes were up 25% to around $9.5B as hedging activity and liquidations increased. Last week bullish flows were focussed on the longer term with 28 Jun24 100k/140k call spreads, Dec24 100k, and Mar25 200k calls. We saw lots of short-term hedging come in on the sell-off in the form of April and May puts and put spreads. Yesterday was saw some short-dated calls and call spreads return.

ETH

ETH volumes are also up 25% to $25Bn. The main bearish structure that traded in size was a seller of 26Apr 3500 and 3600 calls to fund buying 28Jun 3000/2500 put spread. This was not monetized on the sell-off at the weekend unlike some of the BTC protection.

Gamma Positioning

BTC

BTC dealer gamma remains negative as puts have been rolled down to maintain protection. Overall, this level of gamma is not having a material impact and is far dwarfed by the bigger flows driven by the geopolitical headlines.

ETH

ETH dealer gamma faded as spot broke down and we now have a big short strike at 3000. Put spreads have been bought so dealers recover some gamma below 3000 and also above 3600 where calls were sold.

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