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Hey Traders,
BTC spot prices are bullish, with BTC breaking above its recent consolidation in the $37,000-$45,000 range.
This consolidation has allowed BTC volatilities to drop, and the market is viewing higher spot prices as a trigger for low volatility.
But what does low volatility mean in the BTC pits?
For one, low volatility seems to be incentivizing traders to accumulate some upside exposure … in strikes as high as $90k!
But there’s plenty of other trading opportunities presented by the current BTC and ETH vols …
We’ll talk about what’s happening – and some interesting trade ideas – here.
Originally posted on Genesis Volatility.
Disclaimer: Nothing here is trading advice or solicitation. This is for educational purposes only.
$46,409
DVOL: Deribit’s volatility index
(1 month, hourly)
Monday started with a nice push higher, up to $48k following a breakout above $45k. The rally was sharp.
That said, implied volatility (IV) and realized volatility (RV) continued to trend lower, despite prices trending higher.
This is because in the months before, BTC traded in the $45k to $37k range (so a range of $8k, or about 20%) five times in the 60-day period between mid-January to mid-March.
As BTC prices trade between $45k and $48k this week, the overall range is consolidated, which allows volatilities to drop.
TERM STRUCTURE
(April 3rd, 2022 – BTC’s Term Structure – Deribit)
Week over week, the term structure has steepened, as short-term volatility dipped about 10 pts.
Long-term vols haven’t moved, but short-dated volatility and medium term volatility are a good sell (capturing term structure “roll”) if spot prices respect the $40-$50k range. Prices could consolidate within these levels for weeks, as $50k is a rather psychological level.
Long-term volatility continues to be an interesting buy. Spot prices are bullish, and a real bull run will likely bring higher realized volatility.
SKEWS
(April 3rd, 2022 – Short-term and Medium-term BTC Skews – Deribit)
Long-term option skew has finally rallied to par. That said, par is still an interesting buy level for OTM ∆25 calls.
Short-term skews resumed negative levels.
The market is viewing higher spot prices as a trigger for lower volatility. This has proven true in the past couple weeks.
Short-term and medium-term skew is fairly priced from a vol perspective, but is also providing a good entry for those willing to hold long-delta risk.
(April 3rd, 2022 – Long-Dated BTC Skews – Deribit)
Open Interest – @fb_gravitysucks
BTC
The first weekly of the month was characterized by the initial rise in spot, which saw the flow with a bias towards calls.
The open interest profile shows where the action was most concentrated: protection at the $40k support and upside exposure in the $42k-$50k spread.
Unfortunately for call buyers, the settlement price has returned to almost the same level as a week ago.
(Apr 1st, 2022 – BTC Notional – Deribit)
BIG TRADES IN THE FLOW
The weekly flow saw the dynamism we expected after the monthly close in March; however, the trades were rather “light”.
(Mar 28th – Apr 3rd, 2022 – Options scanner BTC – Deribit)
The week can be summarized in two major themes, one tactical and one strategic.
With the former, we essentially saw a constant flow of exposure with call spreads – some calendarized – in April, with strikes $52k-$60k.
The closing of about 30% of the open interest of April 29 $60k should be noted, even if difficult to interpret (e.g. MMs unloading inventory or a large player that closed a previous position).
The second, on the other hand, is the accumulation of upside exposure in the back-end maturities in the strikes $70k-$80k-$90k – certainly incentivized by the low IV – and which caused the long term skew to go into positive territory.
For more insights, follow veteran crypto options trader Fabio on Twitter @fb_gravitysucks
VOLUME
(April 3rd, 2022 – BTC Premium Traded – Deribit)
(April 3rd, 2022 – BTC’s Contracts Traded – Deribit)
Paradigm Block Insights (21 Mar – 27 Mar)
(28 Mar – 3 Apr – Volume Profile – Deribit & Paradigm)
Feel free to contact us at https://t.me/tradeparadigm & follow us at @tradeparadigm on Twitter to access the best pricing and liquidity for large trades in crypto derivatives.
VOLATILITY CONE
(April 3rd, 2022 – BTC’s Volatility Cone)
Realized volatility is completely gassed out across the board.
The spot price levels of $42.5k-$50k will also provide clear consolidation boundaries for sustained lower RV.
Diagonals remain interesting here, to finance long-term call buys.
REALIZED & IMPLIED
(April 3rd – BTC’s 10-day Realized-, and Trade-Weighted-, Implied-Vol.-Deribit)
The RV/IV gap between 10-day RV and ~15-day IV has good juice to be squeezed.
Assuming prices remain within our $42.5k-$50k range, RV is unlikely to pick up…meaning there’s nearly 15pts-20pts of vol. premium here.
Something like -$50k 4/29 C (+$1500) against +65k 9/30 (-$3600) (give or take) looks attractive.
$3,500
DVOL: Deribit’s volatility index
(1 month, hourly)
TERM STRUCTURE
(April 3rd, 2022 – ETH’s Term Structure – Deribit)
ETH vol. is down in the dumps.
ETH Dvol index versus BTC Dvol index are only 10 points apart.
This means that BTC/ETH relative volatility trades could become interesting here.
The term structure is in a rather steep Contango, with nearly 25 points between the front and back maturities.
SKEWS
(April 3rd, 2022 – ETH’s Skews – Deribit)
ETH option skew actually provides an interesting opportunity here.
7-day option skew is about -8pts, while BTC is only -4pts, despite the overall ATM IV spread between ETH & BTC being rather close.
Another interesting element is the relative strength ETH is displaying versus BTC; the ETH/BTC price has rallied +0.005 week-over-week.
Short-term ETH calls are too cheap compared to similar BTC calls.
There’s an opportunity here in the ∆25 space.
(April 3rd, 2022 – ETH’s Skews – Deribit)
Open Interest – @fb_gravitysucks
ETH
As we have been noticing for a few weeks now, the flow on Ether is mostly concentrated on puts.
It is difficult to establish with certainty whether it is a risk hedge or an upside exposure financing.
A two-way interest is likely, although the skew rally over the past two weeks has seen a predominance of selling puts.
(Apr 1st, 2022 – ETH Notional – Deribit)
BIG TRADES IN THE FLOW
The very active week on Ether makes it burdensome to identify clear themes.
In any case, what we saw was a rotation on calls with some important profit taking and the persistent interest towards puts.
After the recent rally, skew has been pretty steady this week, a sign that puts have been trading on both sides.
(Mar 28th – Apr 3rd, 2022 – Options scanner ETH – Deribit)
Color note of the week is that after Hayes’ recent article with the analysis of the expected merge
on Ethereum where he predicts a price of $10k, some participants rushed to buy the December call.
For more insights, follow veteran crypto options trader Fabio on Twitter @fb_gravitysucks
VOLUME
(April 3rd, 2022 – ETH’s Premium Traded – Deribit)
(April 3rd, 2022 – ETH’s Contracts Traded – Deribit)
Paradigm Block Insights (28 Mar – 3 Apr)
(28 Mar – 3 Apr – Volume Profile – Deribit & Paradigm)
Feel free to contact us at https://t.me/tradeparadigm & follow us at @tradeparadigm on Twitter to access the best pricing and liquidity for large trades in crypto derivatives.
VOLATILITY CONE
(April 3rd, 2022 – ETH’s Volatility Cone)
RV is down huge.
Near annual minimums for nearly all measurement windows.
REALIZED & IMPLIED
(April 3rd, ‘22 – ETH’s 10-day Realized -, and Trade-Weighted-, ImpliedVol.-Deribit)
Without a clear catalyst for change, the IV/RV premium can be harvested in ETH (as well as BTC), although selling BTC vol. is likely the better play, given the relative vol. components.