The cryptocurrency market witnessed an intriguing blend of trends during the past week, characterized by seemingly modest week-on-week price fluctuations juxtaposed with pronounced daily volatility.
Key Takeaway #2
Given the daily volatility exhibited by the crypto markets and the potential market-moving events anticipated in October, we continue to recommend owning gamma and vega positions, particularly in the October and November expirations. These positions can provide valuable protection and potential for gains in these uncertain and illiquid markets.
Key Takeaway #3
Key Takeaway #4
The cryptocurrency market witnessed an intriguing blend of trends during the past week, characterized by seemingly modest week-on-week price fluctuations juxtaposed with pronounced daily volatility.
Given the daily volatility exhibited by the crypto markets and the potential market-moving events anticipated in October, we continue to recommend owning gamma and vega positions, particularly in the October and November expirations. These positions can provide valuable protection and potential for gains in these uncertain and illiquid markets.
Premium Content
Unlock exclusive insights with our cutting-edge digital finance platform. Gain access to next-gen data analytics and digital asset products crafted with applied science. Subscribe now to stay ahead of the curve.
The cryptocurrency market witnessed an intriguing blend of trends during the past week, characterized by seemingly modest week-on-week price fluctuations juxtaposed with pronounced daily volatility. The week began with a notable decline in cryptocurrency prices, a development primarily attributed to the market's apprehension surrounding FTX's approval from bankruptcy courts for the sale of its cryptocurrency holdings. This announcement had implications for the broader market, triggering a wave of liquidations across the asset space. The discernible resurgence in demand for downside protection of the past two weeks was likely attributable to anticipation of the FTX announcement and its potential impact. Initial reactions on the selloff saw Implied Volatility (IV) experience a notable pop, particularly in the September and weekly expirations. In the case of BTC, IV exceeded the 40% mark, while Ethereum (ETH) saw its IV rise to 38%.
The selloff failed to gain much steam, however, and many analysts quickly came to the market’s defense, indicating that the markets possess the capacity to absorb the sale of most of FTX’s assets without significant disruption. This led to an abrupt rally of ~5% fueled by a squeeze on short positions. As previously discussed, the cryptocurrency market's limited liquidity can amplify price movements, leading to exaggerated shifts in market dynamics. Traders scrambled to buy gamma, supporting front end implied volatility in the process. We also saw a significant shift in skew back toward the calls. This is particularly notable in ETH where we have not witnessed call skew premium since the XRP ruling over a month ago.
Although the market substantially recovered from Monday's lows, it is essential to note that price levels around $26,400 for BTC and $1,625 for ETH have served as pivotal support and resistance levels over the past few weeks. A settlement above these levels is deemed critical for the prospects of a sustained rally. Given the daily volatility exhibited by the crypto markets and the potential market-moving events anticipated in October, we continue to recommend owning gamma and vega positions, particularly in the October and November expirations. These positions can provide valuable protection and potential for gains in these uncertain and illiquid markets.
YTD 30 Day Implied Volatility BTCvs ETH
•Historically, ETH Implied Volatility has traded at a premium to BTC, as evidenced in the first half of 2023.
•The enthusiasm surrounding multiple BTC ETF applications and the upcoming halving have led to more interest in BTC options.
•BTC IV continues to trade at roughly 3-4% premium across most expirations. This will likely persist until we receive more clarity surrounding the ETF applications and possibly through the halving next April.
ATM IV Term Structure
•Despite a lack of change in underlying prices WoW, IV is up slightly with the exception of the front month.
•With a bevy of potential market movers in October, we continue to recommend buying Vol in the October and November expirations.
•BTC continues to trade at a vol premium to ETH, attributable to the anticipation of a spot ETF approval and the halving next April.
At-the-Money Front Month Daily Implied Volatility
•Front month IV has remained resilient and seems to have found a bottom in the low 30s.
•BTC began the week higher and remained bid for the better part of the week, finally selling off ahead of the weekend.
•Break-evens in both products are trading near historical lows and present excellent risk/reward given the large intra-day movements the markets have been realizing.
BTC & ETH 25 Delta Skew (30 day)
•Skew continues to be more volatile than outright implied volatility.
•30 day skew continues to move in direct correlation with the futures, indicating a directional bias.
•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.
•After rejecting the lows established late Tuesday, the market recovery led to a return to call skew premium in both products.
•This rally in ETH skew is particularly notable, as it has not experienced positive call skew since the XRP ruling one month ago.
Front Month IV Curves
•2 Week BTC 25 delta puts priced 2 vols over ATM, with 25 delta calls priced 1.25 vols over ATM.
•2 Week ETH 25 delta puts priced 2.5 vols over ATM, with 25 delta calls priced 2 vols over ATM.
•Wingy ETH calls and puts trade at a slight premium to BTC, indicating a demand for tail risk options.
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.
•Initially suggested as a long-term upside play, implied volatility has rallied to 42.4%, resulting in a current premium of $20 to the two options on the strategy despite a significant selloff in the futures market.
•We recommend holding the trade at current levels.
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 holding through year end and adding opportunistically.
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.
The cryptocurrency market witnessed an intriguing blend of trends during the past week, characterized by seemingly modest week-on-week price fluctuations juxtaposed with pronounced daily volatility. The week began with a notable decline in cryptocurrency prices, a development primarily attributed to the market's apprehension surrounding FTX's approval from bankruptcy courts for the sale of its cryptocurrency holdings. This announcement had implications for the broader market, triggering a wave of liquidations across the asset space. The discernible resurgence in demand for downside protection of the past two weeks was likely attributable to anticipation of the FTX announcement and its potential impact. Initial reactions on the selloff saw Implied Volatility (IV) experience a notable pop, particularly in the September and weekly expirations. In the case of BTC, IV exceeded the 40% mark, while Ethereum (ETH) saw its IV rise to 38%.
The selloff failed to gain much steam, however, and many analysts quickly came to the market’s defense, indicating that the markets possess the capacity to absorb the sale of most of FTX’s assets without significant disruption. This led to an abrupt rally of ~5% fueled by a squeeze on short positions. As previously discussed, the cryptocurrency market's limited liquidity can amplify price movements, leading to exaggerated shifts in market dynamics. Traders scrambled to buy gamma, supporting front end implied volatility in the process. We also saw a significant shift in skew back toward the calls. This is particularly notable in ETH where we have not witnessed call skew premium since the XRP ruling over a month ago.
Although the market substantially recovered from Monday's lows, it is essential to note that price levels around $26,400 for BTC and $1,625 for ETH have served as pivotal support and resistance levels over the past few weeks. A settlement above these levels is deemed critical for the prospects of a sustained rally. Given the daily volatility exhibited by the crypto markets and the potential market-moving events anticipated in October, we continue to recommend owning gamma and vega positions, particularly in the October and November expirations. These positions can provide valuable protection and potential for gains in these uncertain and illiquid markets.
YTD 30 Day Implied Volatility BTCvs ETH
•Historically, ETH Implied Volatility has traded at a premium to BTC, as evidenced in the first half of 2023.
•The enthusiasm surrounding multiple BTC ETF applications and the upcoming halving have led to more interest in BTC options.
•BTC IV continues to trade at roughly 3-4% premium across most expirations. This will likely persist until we receive more clarity surrounding the ETF applications and possibly through the halving next April.
ATM IV Term Structure
•Despite a lack of change in underlying prices WoW, IV is up slightly with the exception of the front month.
•With a bevy of potential market movers in October, we continue to recommend buying Vol in the October and November expirations.
•BTC continues to trade at a vol premium to ETH, attributable to the anticipation of a spot ETF approval and the halving next April.
At-the-Money Front Month Daily Implied Volatility
•Front month IV has remained resilient and seems to have found a bottom in the low 30s.
•BTC began the week higher and remained bid for the better part of the week, finally selling off ahead of the weekend.
•Break-evens in both products are trading near historical lows and present excellent risk/reward given the large intra-day movements the markets have been realizing.
BTC & ETH 25 Delta Skew (30 day)
•Skew continues to be more volatile than outright implied volatility.
•30 day skew continues to move in direct correlation with the futures, indicating a directional bias.
•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.
•After rejecting the lows established late Tuesday, the market recovery led to a return to call skew premium in both products.
•This rally in ETH skew is particularly notable, as it has not experienced positive call skew since the XRP ruling one month ago.
Front Month IV Curves
•2 Week BTC 25 delta puts priced 2 vols over ATM, with 25 delta calls priced 1.25 vols over ATM.
•2 Week ETH 25 delta puts priced 2.5 vols over ATM, with 25 delta calls priced 2 vols over ATM.
•Wingy ETH calls and puts trade at a slight premium to BTC, indicating a demand for tail risk options.
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.
•Initially suggested as a long-term upside play, implied volatility has rallied to 42.4%, resulting in a current premium of $20 to the two options on the strategy despite a significant selloff in the futures market.
•We recommend holding the trade at current levels.
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 holding through year end and adding opportunistically.
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.
