In the wake of a choppy week that culminated with notable strength in both Bitcoin (BTC) and Ethereum (ETH), the conflict in the Middle East triggered a widespread sell-off in risk assets, affecting equities and cryptocurrencies alike, causing them to open on a lower note.
Key Takeaway #2
Option flows during the week displayed a mixed pattern, primarily influenced by the persistent presence of the ETH call overwriter.
Key Takeaway #3
Worth nothing is that over the past 3 weeks, realized volatility in ETH has outperformed that of BTC by an average of 2.5%.
Key Takeaway #4
Implied volatility during this period has remained at a BTC premium of roughly 3%.
In the wake of a choppy week that culminated with notable strength in both Bitcoin (BTC) and Ethereum (ETH), the conflict in the Middle East triggered a widespread sell-off in risk assets, affecting equities and cryptocurrencies alike, causing them to open on a lower note. Within cryptocurrencies, Ethereum endured a significant share of the selling pressure, witnessing a momentary drop exceeding $100 to reach $1,540. Despite a 5% price movement, traders seem to have little enthusiasm for adding to long options positions in ETH. While implied volatility experienced a modest uptick in the front end of the curve, a more pronounced shift occurred in skew towards the puts.
The week was followed with decent intra-day moves in the underlying, easily capturing daily breakeven levels amid light futures volumes. Much of the focus in the crypto world appeared to be on the details surrounding the SBF trial.
Option flows during the week displayed a mixed pattern, primarily influenced by the persistent presence of the ETH call overwriter (a recurring subject in our reports). Notably, the week saw the unwinding of short positions in October, marked by the purchase of over 100,000 $1,700 calls. Consequently, mid-week, this action was balanced by the sales of calls, specifically in November with strike prices at 1650 and 1700.
Worth nothing is that over the past 3 weeks, realized volatility in ETH has outperformed that of BTC by an average of 2.5%. Implied volatility during this period has remained at a BTC premium of roughly 3%. This has been an excellent opportunity to capture gamma across the products without an outlay of theta. As pointed out last week, taking advantage of this low implied vol regime, particularly in ETH has proven quite profitable. The breakevens in the front end of the curve are being achieved nearly every day, and occasionally even at rates three to four times the norm. Our recommendation is to maintain a long position in the October and November contracts.
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In the wake of a choppy week that culminated with notable strength in both Bitcoin (BTC) and Ethereum (ETH), the conflict in the Middle East triggered a widespread sell-off in risk assets, affecting equities and cryptocurrencies alike, causing them to open on a lower note. Within cryptocurrencies, Ethereum endured a significant share of the selling pressure, witnessing a momentary drop exceeding $100 to reach $1,540. Despite a 5% price movement, traders seem to have little enthusiasm for adding to long options positions in ETH. While implied volatility experienced a modest uptick in the front end of the curve, a more pronounced shift occurred in skew towards the puts.
The week was followed with decent intra-day moves in the underlying, easily capturing daily breakeven levels amid light futures volumes. Much of the focus in the crypto world appeared to be on the details surrounding the SBF trial.
Option flows during the week displayed a mixed pattern, primarily influenced by the persistent presence of the ETH call overwriter (a recurring subject in our reports). Notably, the week saw the unwinding of short positions in October, marked by the purchase of over 100,000 $1,700 calls. Consequently, mid-week, this action was balanced by the sales of calls, specifically in November with strike prices at 1650 and 1700.
Worth nothing is that over the past 3 weeks, realized volatility in ETH has outperformed that of BTC by an average of 2.5%. Implied volatility during this period has remained at a BTC premium of roughly 3%. This has been an excellent opportunity to capture gamma across the products without an outlay of theta. As pointed out last week, taking advantage of this low implied vol regime, particularly in ETH has proven quite profitable. The breakevens in the front end of the curve are being achieved nearly every day, and occasionally even at rates three to four times the norm. Our recommendation is to maintain a long position in the October and November contracts.
1 Month Realized Volatility BTC vs ETH
• For the past 3 weeks, 30 day ETH realized volatility has outpaced that of BTC by an average of 2.5%.
• Despite this, BTC implied volatility has remained at a premium to ETH – a likely result of the consistent overwriting of ETH calls in the front end of the curve.
• This is an example of the current illiquidity in the markets and has presented a great opportunity to generate alpha on a delta neutral trading book.
ATM IV Term Structure
• Contango in both majors remains, with little change in term structure in both majors.
• ETH front month IV popped up slightly to flat with BTC.
• Given the recent realized volatility, we believe ETH IV remains underpriced, especially relative to BTC.
• The belly of both curves took a slight hit this week, with persistent selling in November and December options.
At-the-Money Front Month Daily Implied Volatility
• Front month IV in BTC trended lower on the week.
• ETH IV rallied slightly week on week and the front month is trading at a slight premium to BTC for the first time in over a month.
• 30-day Implied Volatility still remains historically cheap and will likely continue to face pressure, barring a breakout of the recent range-bound trading.
BTC & ETH 25 Delta Skew (30 day)
• Skew continues to be much more volatile than outright implied volatility.
• ETH skew sold off from a slight call premium to a high of 24.4% put premium on Tuesday into Wednesday.
• This is a strong indication that much of the paper flow in cryptos is currently speculative paper, bidding calls on rallies and puts on selloffs.
• Given the choppiness in the skew, we believe this is a good time to buy call/sell put in ETH and look for a mean reversion next week.
Front Month IV Curves
• 2 week BTC 25 delta puts priced 3 vols over ATM, with 25 delta calls priced 1.25 vols over ATM.
• 2 week ETH 25 delta puts priced 5.25 vols over ATM, with 25 delta calls priced 1.5 vols under ATM.
• Skew is up in both majors this week, particularly in ETH.
• Given the volatility in skew, this is a good level to buy call/sell put in ETH, as we believe this will revert on an unchanged opening or higher move next week.
ETH 1x2 Call Spread Expiring March 2024
• We will continue to monitor our past two recommended trade strategies in the ETH March ‘24 contract.
• We suggested selling the $2100/$2500 1 by 2 call spread (selling the $2100 call, buying 2 $2500 calls) at flat premium.
• ATM implied volatility in March ’24 stands at 42%, resulting in a current premium of $10 to the two options on the strategy, despite a significant selloff in the futures market.
• We recommend rolling this trade up closer to At-the-money by selling a ratio butterfly: -1 1800 call, +3 2100 calls, -2 2500 calls at flat premium, effectively exchanging the 2100/2500 1x2 cs into the 1800/2100 1x2 cs.
ETH 1x2 Iron Butterfly Expiring March 2024
• Monitoring our second recommended strategy of selling one March $1900 Straddle and buying two $1600/$2200 Strangles:
• Similar to the call spread ratio, there was zero outlay of premium.
• Currently this iron butterfly ratio value remains flat.
• We view this as a long-term strategy and recommend rolling the strikes down on a break below $1500 in the underlying.
Implied Volatility - represents the market's expectation of future price fluctuations and is a key metric employed to price options contracts.
Realized Volatility - also known as historical volatility, this measures past market changes and their actual results.
Delta - a measure of the change in value of an option given a change in the underlying futures contract.
Vega - a measure of an option's price sensitivity to changes in implied volatility.
Gamma - a measure of the rate of change in delta given a change in the underlying futures contract.
Theta - a measure of the rate of decline in the value of an option over time.
Rho - the amount a theoretical option’s price will change for a corresponding one percentage-point change in the interest rate used to price the option contract.
Implied Volatility Curve - a U-shaped graphical representation of the pattern created by the implied volatilities of multiple options contracts with the same expiration date.
Term structure of Volatility Curve - the curve depicting the differing implied volatilities of options with the same strike price but different maturities.
Break-even - the amount of underlying movement the trader needs to capture in hedged P&L via gamma to offset daily theta.
Support and Resistance - key price levels in technical analysis that indicate the levels at which buying or selling pressure is likely to be strong enough to prevent the price from moving below or beyond that level.
Paper - institutional player, producer or hedger, a non market-maker.
Call - an option that gives the buyer the right, but not the obligation, to buy the underlying asset at the strike price any time before it expires.
Put - an option that gives the buyer the right, but not the obligation, to sell the underlying asset at the strike price any time before it expires.
Roll - to simultaneously close one option position and open another with the same commodity but a different strike price and/or expiration month.
Straddle - an options trading strategy that involves buying both a call option and a put option at the same strike price and expiration date.
Strangle - an options trading strategy that involves buying both a call option and a put option at different strike prices but with the same expiration date.
Put Spread - an options trading strategy that involves buying a put option at a specific strike price and selling another put option at a lower strike price, both with the same expiration date.
Call Spread - an options trading strategy that involves buying a call option at a specific strike price and selling another call option at a higher strike price, both with the same expiration date.
Iron Condor - an options trading strategy that involves simultaneously buying equidistant out-of-the-money call spreads and put spreads.
Call/Put Calendar - an options trading strategy that involves buying an option at a specific strike and selling an option at the same strike across different expirations.
Butterfly - an options trading strategy that involves buying one low strike and one high strike option and selling two middle strike options.
Iron Fly - an options trading strategy that involves buying and selling three options at the same expiration date and strike price. The strategy consists of buying one call option and one put option at the middle strike price, and selling two options at different strike prices that are equidistant from the middle strike price.
Disclosures
Purpose
This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.
Analyst Certification
Michael Tauckus, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.
Conflicts of Interest
This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.
General Disclosures
Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or throughhttp://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such.BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.
The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance.
All derivatives brokerage is conducted byOoda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.
BitOoda Technologies, LLC is a member of FINRA.
“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.
Copyright 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.
In the wake of a choppy week that culminated with notable strength in both Bitcoin (BTC) and Ethereum (ETH), the conflict in the Middle East triggered a widespread sell-off in risk assets, affecting equities and cryptocurrencies alike, causing them to open on a lower note. Within cryptocurrencies, Ethereum endured a significant share of the selling pressure, witnessing a momentary drop exceeding $100 to reach $1,540. Despite a 5% price movement, traders seem to have little enthusiasm for adding to long options positions in ETH. While implied volatility experienced a modest uptick in the front end of the curve, a more pronounced shift occurred in skew towards the puts.
The week was followed with decent intra-day moves in the underlying, easily capturing daily breakeven levels amid light futures volumes. Much of the focus in the crypto world appeared to be on the details surrounding the SBF trial.
Option flows during the week displayed a mixed pattern, primarily influenced by the persistent presence of the ETH call overwriter (a recurring subject in our reports). Notably, the week saw the unwinding of short positions in October, marked by the purchase of over 100,000 $1,700 calls. Consequently, mid-week, this action was balanced by the sales of calls, specifically in November with strike prices at 1650 and 1700.
Worth nothing is that over the past 3 weeks, realized volatility in ETH has outperformed that of BTC by an average of 2.5%. Implied volatility during this period has remained at a BTC premium of roughly 3%. This has been an excellent opportunity to capture gamma across the products without an outlay of theta. As pointed out last week, taking advantage of this low implied vol regime, particularly in ETH has proven quite profitable. The breakevens in the front end of the curve are being achieved nearly every day, and occasionally even at rates three to four times the norm. Our recommendation is to maintain a long position in the October and November contracts.
1 Month Realized Volatility BTC vs ETH
• For the past 3 weeks, 30 day ETH realized volatility has outpaced that of BTC by an average of 2.5%.
• Despite this, BTC implied volatility has remained at a premium to ETH – a likely result of the consistent overwriting of ETH calls in the front end of the curve.
• This is an example of the current illiquidity in the markets and has presented a great opportunity to generate alpha on a delta neutral trading book.
ATM IV Term Structure
• Contango in both majors remains, with little change in term structure in both majors.
• ETH front month IV popped up slightly to flat with BTC.
• Given the recent realized volatility, we believe ETH IV remains underpriced, especially relative to BTC.
• The belly of both curves took a slight hit this week, with persistent selling in November and December options.
At-the-Money Front Month Daily Implied Volatility
• Front month IV in BTC trended lower on the week.
• ETH IV rallied slightly week on week and the front month is trading at a slight premium to BTC for the first time in over a month.
• 30-day Implied Volatility still remains historically cheap and will likely continue to face pressure, barring a breakout of the recent range-bound trading.
BTC & ETH 25 Delta Skew (30 day)
• Skew continues to be much more volatile than outright implied volatility.
• ETH skew sold off from a slight call premium to a high of 24.4% put premium on Tuesday into Wednesday.
• This is a strong indication that much of the paper flow in cryptos is currently speculative paper, bidding calls on rallies and puts on selloffs.
• Given the choppiness in the skew, we believe this is a good time to buy call/sell put in ETH and look for a mean reversion next week.
Front Month IV Curves
• 2 week BTC 25 delta puts priced 3 vols over ATM, with 25 delta calls priced 1.25 vols over ATM.
• 2 week ETH 25 delta puts priced 5.25 vols over ATM, with 25 delta calls priced 1.5 vols under ATM.
• Skew is up in both majors this week, particularly in ETH.
• Given the volatility in skew, this is a good level to buy call/sell put in ETH, as we believe this will revert on an unchanged opening or higher move next week.
ETH 1x2 Call Spread Expiring March 2024
• We will continue to monitor our past two recommended trade strategies in the ETH March ‘24 contract.
• We suggested selling the $2100/$2500 1 by 2 call spread (selling the $2100 call, buying 2 $2500 calls) at flat premium.
• ATM implied volatility in March ’24 stands at 42%, resulting in a current premium of $10 to the two options on the strategy, despite a significant selloff in the futures market.
• We recommend rolling this trade up closer to At-the-money by selling a ratio butterfly: -1 1800 call, +3 2100 calls, -2 2500 calls at flat premium, effectively exchanging the 2100/2500 1x2 cs into the 1800/2100 1x2 cs.
ETH 1x2 Iron Butterfly Expiring March 2024
• Monitoring our second recommended strategy of selling one March $1900 Straddle and buying two $1600/$2200 Strangles:
• Similar to the call spread ratio, there was zero outlay of premium.
• Currently this iron butterfly ratio value remains flat.
• We view this as a long-term strategy and recommend rolling the strikes down on a break below $1500 in the underlying.
Implied Volatility - represents the market's expectation of future price fluctuations and is a key metric employed to price options contracts.
Realized Volatility - also known as historical volatility, this measures past market changes and their actual results.
Delta - a measure of the change in value of an option given a change in the underlying futures contract.
Vega - a measure of an option's price sensitivity to changes in implied volatility.
Gamma - a measure of the rate of change in delta given a change in the underlying futures contract.
Theta - a measure of the rate of decline in the value of an option over time.
Rho - the amount a theoretical option’s price will change for a corresponding one percentage-point change in the interest rate used to price the option contract.
Implied Volatility Curve - a U-shaped graphical representation of the pattern created by the implied volatilities of multiple options contracts with the same expiration date.
Term structure of Volatility Curve - the curve depicting the differing implied volatilities of options with the same strike price but different maturities.
Break-even - the amount of underlying movement the trader needs to capture in hedged P&L via gamma to offset daily theta.
Support and Resistance - key price levels in technical analysis that indicate the levels at which buying or selling pressure is likely to be strong enough to prevent the price from moving below or beyond that level.
Paper - institutional player, producer or hedger, a non market-maker.
Call - an option that gives the buyer the right, but not the obligation, to buy the underlying asset at the strike price any time before it expires.
Put - an option that gives the buyer the right, but not the obligation, to sell the underlying asset at the strike price any time before it expires.
Roll - to simultaneously close one option position and open another with the same commodity but a different strike price and/or expiration month.
Straddle - an options trading strategy that involves buying both a call option and a put option at the same strike price and expiration date.
Strangle - an options trading strategy that involves buying both a call option and a put option at different strike prices but with the same expiration date.
Put Spread - an options trading strategy that involves buying a put option at a specific strike price and selling another put option at a lower strike price, both with the same expiration date.
Call Spread - an options trading strategy that involves buying a call option at a specific strike price and selling another call option at a higher strike price, both with the same expiration date.
Iron Condor - an options trading strategy that involves simultaneously buying equidistant out-of-the-money call spreads and put spreads.
Call/Put Calendar - an options trading strategy that involves buying an option at a specific strike and selling an option at the same strike across different expirations.
Butterfly - an options trading strategy that involves buying one low strike and one high strike option and selling two middle strike options.
Iron Fly - an options trading strategy that involves buying and selling three options at the same expiration date and strike price. The strategy consists of buying one call option and one put option at the middle strike price, and selling two options at different strike prices that are equidistant from the middle strike price.
Disclosures
Purpose
This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.
Analyst Certification
Michael Tauckus, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.
Conflicts of Interest
This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.
General Disclosures
Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or throughhttp://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such.BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.
The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance.
All derivatives brokerage is conducted byOoda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.
BitOoda Technologies, LLC is a member of FINRA.
“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.
Copyright 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.
