Genesis Volatility provides incredible analysis and a deeper look into the technical aspects of cryptocurrencies and crypto options. With crypto remaining a hot topic for traders of all types in today’s market, we’ve partnered with Genesis to provide their weekly insight to Pit Report subscribers.
Hey Traders,
A slight decrease in the rate of inflation saw markets rally …
Saw the volatility fall …
And saw crypto follow suit.
But will it stick?
If the S&P 500 (Ticker: SPX) continues to head higher, it is likely crypto will follow.
And traders can enjoy the relief rally we’re seeing now …
But don’t get too comfortable.
In the medium term, the “pain train” is likely not over.
See what to expect below.
Originally posted on Genesis Volatility.
Author: Greg Magadini
Visit gvol.io
Disclaimer: Nothing here is trading advice or solicitation. This is for educational purposes only.
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.
Weekly Theme – Relief Rally and Lower Vol.
Friday we saw a sharp rally in US equities as the rate of inflation slowed down slightly.
(WSJ – PCE numbers released at 8:30 am ET)
This is an excuse for a relief rally given the Fed is reacting to inflation.
Crypto and TradFi assets have had a high correlation as of late and therefore our weekly theme is based on activity currently found in TradFi.
The VIX futures term structure is now in contango with futures trading progressively higher over spot, suggesting IV is likely headed lower.
Cash VIX is near monthly lows as S&P 500 (Ticker: SPX) option vol. is sold lower, and fear leaves the market.
VIX of VIX, VVIX, is the BIG story here!
VVIX is now making new lows since the START of the COVID-19 pandemic.
The vol. market is likely leading the way for higher S&P prices. If SPX heads higher, most likely crypto follows and crypto vol. heads much lower.
Medium term, the pain-train is likely not over… but short-term it looks like asset prices will be experiencing a relief rally.
$29,159
DVOL: Deribit’s volatility index
(1 month, hourly)
TERM STRUCTURE
(May 29th, 2022 – BTC’s Term Structure – Deribit)
(gvol API python module, pre-built notebook charts )
The term structure is a “mixed” shape.
The front is very steep and decidedly in Contango with the back-end relatively flat.
30-day IV is on the cusp of both regimes and a GREAT short-vol. candidate.
Should spot prices retake $30k we would be even more confident in the short-vol. thesis… This has been a very “well-defined” price level and a great trigger for measured-risk.
SKEWS
(May 29th, 2022 – Short-term and Medium-term BTC Skews – Deribit)
Put skew has persistently been bid.
Lower vol. makes short-put skew an especially interesting risk opportunity.
30-day put skew is also the most bid here, which would play nicely with the term structure shape for short-vol. traders.
(May 29th, 2022 – Long-Dated BTC Skews – Deribit)
Open Interest – @fb_gravitysucks
BTC
Over the past month, the index dropped from $40k to $29k dictating the sentiment of traders.
The puts accumulated throughout the period between $35k and $30k and the timid bullish trades with call ratio 1×2, are evident in reading the open interest profile. Noteworthy are the $26k/$20k strikes sold, resulting in a positive gamma exposure by MMs to act as support.
With nearly $1.8B of notional, the deadline was the second highest in the whole 2022 by number of contracts (about 60k of which 80% expired worthless).
(May 27th, 2022 – BTC Notional – Deribit)
(May 27th, 2022 – BTC Dollar Premium – Deribit)
BIG TRADES IN THE FLOW
The lowest week in May considering both contracts and notional and one of the most subdued in all of 2022.
(Global volumes BTC – Deribit)
(23rd – 29th May, 2022 – Options scanner BTC – Deribit)
On Friday, we report the purchase of calls $31k for June 3rd and $32k for June 10th, bet on a short-term relief rally.
Among the most “heavy” trades in terms of premium paid, instead we point out the purchase of over 1000x $28k June 24th put contracts for about $2M.
For more insights, follow veteran crypto options trader Fabio on twitter @fb_gravitysucks
VOLUME
(May 29th, 2022 – BTC Premium Traded – Deribit)
(May 29th, 2022 – BTC’s Contracts Traded – Deribit)
Paradigm Block Insights (16 May – 22 May) BTC
BTC
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
(May 29th 2022 – BTC’s Volatility Cone)
Realized vol. has “come-in” significantly these past few weeks ever since the Luna madness has been behind us.
Again, we don’t think new crypto highs and a persistently low RV regime are here for the long-term… but in the short-term, it looks like we’re in relief rally territory.
REALIZED & IMPLIED
(gvol API python module, pre-built notebook charts)
Notice that IV is now above RV… Option traders are pricing a hike higher in short-term IV.
We think this is wrong, given our relief rally theme, and look at this IV/RV spread as a significant profit opportunity this week.
There’s a large IV premium, skew premium and we expect RV to hold or even head LOWER.
$1,794
DVOL: Deribit’s volatility index
(1 month, hourly)
TERM STRUCTURE
(May 29th, 2022 – ETH’s Term Structure – Deribit)
ETH IV is seeing a lot of “jumps” as ETH spot prices are unable to keep an advantage over BTC. Instead ETH is showing relative weakness. The ratio got priced substantially lower.
SKEWS
(May 29th, 2022 – ETH’s Skews – Deribit)
The higher IV jumps + the lower ETH/BTC ratio and now the skew bid to the puts makes ETH vol. a GREAT candidate for a relief rally week.
ETH put vol. is likely to get smoked this week and ETH could easily head back to +$2k
(May 29th, 2022 – ETH’s Skews – Deribit)
(Pre-built notebooks using the gvol Python module)
Open Interest – @fb_gravitysucks
ETH
Unlike bitcoin, for ethereum the puts stand out, albeit slightly in the total, with an interesting concentration between $1.8k/$1.7k/$1.6k.
The majority of these contracts were opened last week, often in put-spread combination. The two-way interest shown by traders in these strikes suggests mild support in terms of gamma.
With nearly $1B of notional, the deadline was the second highest in all of 2022 by number of contracts (about 550k of which 67% expired worthless).
(May 27th, 2022 – ETH Contracts – Deribit)
(May 27th, 2022 – ETH Dollar Premium – Deribit)
BIG TRADES IN THE FLOW
Also for ethereum volumes were down compared to recent weeks with puts taking mostly part of trades.
(23rd – 29th May, 2022 – Options scanner ETH – Deribit)
Of note is the continuation of call spreads in December $3.5k/$4k and $4k/$4.5k, trades that we have already talked about in past newsletters.
However, the most traded strikes of the week were $1.7k and $1.6k (puts) and the buying of $2k call on 3rd June.
For more insights, follow veteran crypto options trader Fabio on twitter @fb_gravitysucks
VOLUME
(May 29th, 2022 – ETH’s Premium Traded – Deribit)
(May 29th, 2022 – ETH’s Contracts Traded – Deribit)
Paradigm Block Insights (16 May – 22 May) ETH
ETH
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
(May 29th 2022 – ETH’s Volatility Cone)
Median RV across the board, as ETH RV is propped up from relatively weak spot activity.
We think RV heads lower and ETH relative spot weakness ceases as 2.0 merge news and headlines hit the wire, combined with the relief rally.
REALIZED & IMPLIED
(Gvol API python module, pre-built notebook charts)
ETH IV/RV is kissing, likely due to the higher RV.
Instead of ETH IV pricing a premium, short-vol. sellers will likely benefit from a drop in RV.
$44.45
DVOL: Deribit’s volatility index
(1 month, hourly)
TERM STRUCTURE
(May 29th, 2022 – SOL’s Term Structure – Deribit)
Nice big “hump” structure in SOL IV.
I’m very weary of short-IV positions in SOL because I think the spot-vol relationship is less predictable.
I’d rather be short-skew in SOL… I think SOL could easily hit $90 again in “no-time”, which makes RV explode higher on the long side.
SKEWS
(May 29th, 2022 – Short-term and Medium-term SOL Skews – Deribit)
Vol. neutral skew trades are interesting here.
SOL has a small market cap. and a sharp rally could definitely happen in SOL.
The skew is still quite negative, so fading skew is my preferred trade here.
(May 29th, 2022 – Long-Dated SOL Skews – Deribit)
VOLUME & OI
(May 29th, 2022 – SOL OI Profile – Deribit)
Big June quarterly expiration concentration.
Put/Call ratio favoring puts.
Concentration of low delta put OI too.
(May 29th, 2022 – SOL Premium Traded – Deribit)
(May 29th, 2022 – SOL’s Contracts Traded – Deribit)
VOLATILITY CONE
(May 29th, 2022 – SOL’s Volatility Cone)
SOL RV is still high!
Interesting to note, smaller cap RV is still way above the median while BTC is around the 25th percentile.