Derivatives Market Update - 08.08.2023
August 8, 2023

Volatility Markets - Overview

As Bitcoin continues to range between $29,500 and $28,700, we again saw implied vols drop. Near term vols now sit below 30, and mid-term expiries like Aug, Sep, and Dec dropped roughly 4 points now sitting at 32, 34.1, 34.8, and 40 (respectively). Ethereum ATM vols also dropped but by roughly 2 points for mid-late term expiries. The compressed volatility regime in crypto is clearly persistent as the downwards trend in volatility continues week over week. Two main features are clearly evident from the current Volatility structures present in the market: steep term structure, and a palpable difference in BTC and ETH skew. The front end of both curves starts at about 25 vol and grows to 47 vol (45 vol for ETH). This creates an environment potentially rich for short Calendar Spread positions as one would expect the slope of the term structure to decrease. This position is interesting because it does not directly require the trader to take a view on a specific expirie’s vol, but rather on the slope between two expiries.

The second feature noted above, the difference between ETH and BTC skew, is quite pronounced mid-term expiries but gets more pronounced for expiries greater than 60 days away. Pictured in the graphs below, are interpolated BTC and ETH vols for set expiries of 7, 30, 60, and 90 days. Looking at the superimposed vol smiles, it is clearly evident that call side skew is much higher for BTC, especially when looking at the 60 and 90 day smiles. Whether or not this presents an arbitrage opportunity or a high probability trade is subject to research, but the effect is pronounced and the skew differences noticeably widened this past week.

Digging Deeper - Volume Analytics

Digging deeper into BTC Deribit and Paradigm block trade data we see the biggest volumes in 1x3 Call Ratio Spreads, Risk Reversals, and Strangles / Straddles (19.2%, 18.4%, 15.6%). Also seen in Deribit’s volume breakdown was a larger majority of Calls sold, 36.4%, slightly above normal levels of 30%-33%.

Ethereum volume data on the other hand showed quite a different mix in combination spreads and Call Diagonal Spreads comprised the overwhelming majority of volume. The top 3 were Call Diagonal Spreads, Put Diagonal Spreads, and Risk Reversals (44.6%, 13.4%, and 13.1%). ETH also showed dominance in short calls this week, with call selling comprising 42.6% (205,418 contracts) of Deribit’s ETH volume.

BTC Combo Spread Volumes:

  • 1x3 Call Ratio Spreads: 900 Contracts 
  • Risk Reversals: 863 Contracts
  • Strangles / Straddles: 731.5 Contracts

ETH Combo Spread Volumes:

  • Call Diagonal Spreads: 33,250 Contracts 
  • Put Diagonal Spreads: 10,000 Contracts 
  • Strangle / Straddle: 9,748 Contracts




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