February 29, 2024

Crypto Options: BTC Flies as Put Hedges Increase

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 the crypto options market.

Realized Volatility

BTC realized vol hit as low as 30 last week as we stabilized into expiry, but since then we've seen a bounce to 40 on-the-spot break higher up to 55k.
ETH realized vol has been more stable around the low 50s, as spot has been outperforming until the last 24hrs where BTC has taken back 5%.
Volatility carry remains deeply positive, at 16 vol on BTC and 11 vols on ETH (these are around the 70-80th percentiles). This should entice some gamma sellers at the first sign of stability.

The main macro data point this week will be PCE inflation, but we've seen a fair amount of hawkish repricing in the rates market, and crypto doesn't seem to care.
Call overwriters are probably licking their wounds right now, but that is where the opportunity seems to be if you own the assets.

Term Structure

BTC

BTC term structure sees an inversion in the front end.
1-2 week expiries have found a bid as GAMMA performed well on the break higher. 1-month vol unchanged.
Back-end vol is slightly firmer and call skew fading across the curve.

ETH

ETH term structure also inverting but less than BTC as 1-month ETH was also well bid.
Vol higher out to Jun24 expiry.
Long-dated expiries seeing some selling with Dec24 down over 1 vol.
Call skew under pressure and even flipping to put premium in short-end expiries.

Relative Value

ETH/BTC

ETH/BTC vol spread overall holding a decent premium to BTC but some small tweaks across the curve.
Realized vol spread remains firmly in favour of ETH at 5-10 vols over.
The ETH/BTC spot spread traded up to the January highs but has since given back 5% as BTC exploded higher. We still like owning the spread and ultimately expect it to break through the Jan highs, but BTC halving story seems to have legs right now.
We had said last week that just owning outright calls or call spreads rather than selling BTC calls to finance was likely the right play given the strong price momentum. Nothing has really changed on that front, but if you did wait to sell, there are worth a lot more up here.
We are excitedly waiting for SOL options to become available so that we can look at some upside plays there as SOL/ETH has been consolidating nicely since the parabolic run into December.

Crypto Option Flows

BTC

Volumes dropped 30% in BTC this week to around $5.5Bn. As 23Feb put protection rolled off we saw put buying in March expiries in the 51k to 48k strike zone. A gamma seller chose to use 29Mar 54k/50k/ 46k put flys to sell local strikes, but markets have moved through the top wing. 29Mar24 58k-60-65k calls also bought to play a break higher. Longer-dated calls not moving around much.

ETH

ETH options volumes are flat at $4Bn as spot smashes through 3000. Mar24 calls in 3100-3300 strikes getting lifted to chase the momentum. The big block trade came from 26Apr 3000/3700 call spreads in 24k lots and this explains why call skew didn't explode on the break higher. We did see smaller clips in bullish risk reversals, selling Mar and Apr 2600-2800 puts as funding legs.

Gamma Positioning

BTC

BTC dealer gamma positioning collapsed after 23Feb expiry, where dealers had been very short options but are now looking much cleaner. The bulk of this week's short strike are down near 52k, and we've rallied above 55k where dealers are long. Net gamma looks balanced here.

ETH

ETH dealer gamma has been very stable at a small positive. March options selling has been layering up from 2600 to 3000. Dealers are short some 01Mar 3000 and 3100 strikes which are balancing the risk out. Above 3300, dealers would become short.

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