Volatility Weekly

Volatility Update, 11/3/23

BitOoda Crypto Market Report

Michael Tauckus
Key Takeaway #1

Markets with combined high call skew and high implied volatility present optimal call selling opportunities for hedging.

Key Takeaway #2

Miners should consider selling a collar to lock in a floor price financed with a call sale.

Key Takeaway #3

The term structure will likely mimic spot price with the front end rallying on up moves and coming in on pull backs.

Key Takeaway #4

The absence of the ETH call overwriter certainly contributes to the higher IV regime we’re witnessing.

The prominent headline this week in the crypto space is naturally the verdict finding Sam Bankman-Fried guilty on seven counts of criminal fraud. This verdict hopefully serves as a poignant lesson and reminder that individuals engaged in unethical practices for quick financial gains will not be tolerated and will be held accountable. The ongoing adoption of digital assets and decentralized finance must be spearheaded by reputable and regulated firms that prioritize the best interests of their clients.

Putting this behind us, let's shift our focus to the market activity of the past week. Following the record-breaking volumes in the options market last week, this week witnessed a period of consolidation and reduced trading activity. The market opened quietly this week, with Bitcoin (BTC) maintaining its Friday levels and Ethereum (ETH) exhibiting a modest 1% increase. Option flows were primarily centered around ETH, with the frequently mentioned call overwriter closing their open positions by buying around 100k November 1650 and 1700 calls.

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The prominent headline this week in the crypto space is naturally the verdict finding Sam Bankman-Fried guilty on seven counts of criminal fraud. This verdict hopefully serves as a poignant lesson and reminder that individuals engaged in unethical practices for quick financial gains will not be tolerated and will be held accountable. The ongoing adoption of digital assets and decentralized finance must be spearheaded by reputable and regulated firms that prioritize the best interests of their clients.

Putting this behind us, let's shift our focus to the market activity of the past week. Following the record-breaking volumes in the options market last week, this week witnessed a period of consolidation and reduced trading activity. The market opened quietly this week, with Bitcoin (BTC) maintaining its Friday levels and Ethereum (ETH) exhibiting a modest 1% increase. Option flows were primarily centered around ETH, with the frequently mentioned call overwriter closing their open positions by buying around 100k November 1650 and 1700 calls.

On Tuesday, we saw indiscriminate volatility buying, with more investors entering long ETH volatility plays through outright call options and straddles in the November expiration. In BTC, there was a prevailing bullish sentiment, with substantial buying of upside in the December contract. Implied Volatility experienced a slight reduction mid-week but remained at elevated levels compared to the past few months. If the Ethereum call overwriter refrains from active participation for an extended period, it is conceivable that this higher implied volatility environment may persist through year end.

Wednesday afternoon brought the FOMC announcement hinting at a potential conclusion to its historically significant tightening measures. The initial market response was muted, but the macro risk-on sentiment gradually seeped into the crypto realm in the evening and continued into Thursday morning, propelling the markets to new year-to-date highs (BTC at $36,000 and ETH at $1,880). Implied Volatility followed suit, increasing from the mid-50s in the front end to the low 60s in the back end. Options activity remained bullish, with the purchase of BTC calls and ETH call spreads. However, in line with the market's tendencies this year, the rally lost momentum, and we returned to range-bound trading for the rest of the week. Implied Volatility mirrored this trend, showing a decline this morning from yesterday’s highs but still registering a week-on-week increase.

Demand for BTC upside remains unswerving. The skew, which favors call options in both major cryptocurrencies across various expirations, persists as market participants continue to acquire upside positions, even on pullbacks in the underlying. This particular dynamic, especially in the BTC market, presents an excellent hedging opportunity. The combination of high volatility and historically pronounced call skew generates substantial premiums in equidistant collar strategies, leading to yield generation in addition to downside insurance. Please reach out to discuss the most suitable strike prices and durations for your firm's needs.

 

Notable Headline 

 Crypto’s First Year After the FTX Blowup: ‘It’s Been Miserable’ (link)
  Bitcoin is 'exponential gold,' says Fidelity executive (link)
PayPal Faces SEC Subpoena Over Its PYUSD Stablecoin (link)
U.S. payrolls increased by 150,000 in October, less than expected (link)
Bitcoin Put Options, Which Offer Downside Protection, Look Unusually Cheap. Will the Situation Last? (link)
'Santa Rally' Could Propel Bitcoin to $56K by Year-End, Matrixport Says (link)
Crypto Token Tied to Sam Bankman-Fried Is Now the Year’s Best Performer (link)
Bitcoin Miner Marathon Tests BTC Mining With Methane Gas From Waste Landfill (link)
Bitcoin ETF Mania Is Obscuring Coinbase’s ‘Existential Overhang’ (link)
Bitcoin could hit $150,000 by 2025, predicts Bernstein (link)

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 through http on or ://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 by Ooda 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.

The prominent headline this week in the crypto space is naturally the verdict finding Sam Bankman-Fried guilty on seven counts of criminal fraud. This verdict hopefully serves as a poignant lesson and reminder that individuals engaged in unethical practices for quick financial gains will not be tolerated and will be held accountable. The ongoing adoption of digital assets and decentralized finance must be spearheaded by reputable and regulated firms that prioritize the best interests of their clients.

Putting this behind us, let's shift our focus to the market activity of the past week. Following the record-breaking volumes in the options market last week, this week witnessed a period of consolidation and reduced trading activity. The market opened quietly this week, with Bitcoin (BTC) maintaining its Friday levels and Ethereum (ETH) exhibiting a modest 1% increase. Option flows were primarily centered around ETH, with the frequently mentioned call overwriter closing their open positions by buying around 100k November 1650 and 1700 calls.

On Tuesday, we saw indiscriminate volatility buying, with more investors entering long ETH volatility plays through outright call options and straddles in the November expiration. In BTC, there was a prevailing bullish sentiment, with substantial buying of upside in the December contract. Implied Volatility experienced a slight reduction mid-week but remained at elevated levels compared to the past few months. If the Ethereum call overwriter refrains from active participation for an extended period, it is conceivable that this higher implied volatility environment may persist through year end.

Wednesday afternoon brought the FOMC announcement hinting at a potential conclusion to its historically significant tightening measures. The initial market response was muted, but the macro risk-on sentiment gradually seeped into the crypto realm in the evening and continued into Thursday morning, propelling the markets to new year-to-date highs (BTC at $36,000 and ETH at $1,880). Implied Volatility followed suit, increasing from the mid-50s in the front end to the low 60s in the back end. Options activity remained bullish, with the purchase of BTC calls and ETH call spreads. However, in line with the market's tendencies this year, the rally lost momentum, and we returned to range-bound trading for the rest of the week. Implied Volatility mirrored this trend, showing a decline this morning from yesterday’s highs but still registering a week-on-week increase.

Demand for BTC upside remains unswerving. The skew, which favors call options in both major cryptocurrencies across various expirations, persists as market participants continue to acquire upside positions, even on pullbacks in the underlying. This particular dynamic, especially in the BTC market, presents an excellent hedging opportunity. The combination of high volatility and historically pronounced call skew generates substantial premiums in equidistant collar strategies, leading to yield generation in addition to downside insurance. Please reach out to discuss the most suitable strike prices and durations for your firm's needs.

 

Notable Headline 

 Crypto’s First Year After the FTX Blowup: ‘It’s Been Miserable’ (link)
  Bitcoin is 'exponential gold,' says Fidelity executive (link)
PayPal Faces SEC Subpoena Over Its PYUSD Stablecoin (link)
U.S. payrolls increased by 150,000 in October, less than expected (link)
Bitcoin Put Options, Which Offer Downside Protection, Look Unusually Cheap. Will the Situation Last? (link)
'Santa Rally' Could Propel Bitcoin to $56K by Year-End, Matrixport Says (link)
Crypto Token Tied to Sam Bankman-Fried Is Now the Year’s Best Performer (link)
Bitcoin Miner Marathon Tests BTC Mining With Methane Gas From Waste Landfill (link)
Bitcoin ETF Mania Is Obscuring Coinbase’s ‘Existential Overhang’ (link)
Bitcoin could hit $150,000 by 2025, predicts Bernstein (link)

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 through http on or ://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 by Ooda 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.

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