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This week Bitcoin implied volatilities finally lifted in response to the massive drop in price on Friday the 18th. Near term volatility smiles experienced the highest increase moving about 7-10 points with August / early September vols sitting at 40 vol. Mid - late term vols pushed about 5 - 8 points with September, December and March now sitting at 38, 40.4, and 43. This last move up also changed the approximate spot vol correlation, with the hourly correlation between BTC’s log returns and the change in 30 day implied volatility sitting at -57%. Previously, a slight but positive correlation held whereas now the dynamics resemble what would normally be seen in vol markets, namely a negative spot - vol correlation.
ETh vols naturally followed suit, lifting about the same amount in each expiry, but still remaining 3 - 5 vol lower than BTC. ETH smiles however still exhibit a much more pronounced put side skew with further tenures exhibiting more negative skew. This can be rationalized by the higher natural demand for downside protection in ETH, as more market participants are likely hedging staked inventory with Puts.
Digging deeper into BTC Deribit and Paradigm block trade data we see the biggest volumes in Strangles / Straddles, Call Diagonal Spreads, and Risk Reversals, and (23%, 18%, 12.2%). Ethereum volume data shows a similar mix of vol / skew based combination spreads but with Call Calendar Spreads comprising the majority of volume. The top 3 were Call Calendar Spreads, Put Spreads, and Call Spreads (22.7%, 18.6%, and 16.7%).
BTC Combo Spread Volumes:
ETH Combo Spread Volumes:
***Data and insights as of August 21st, 2023 16:00:00 UTC
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