If one had anticipated that the unofficial conclusion of the summer season (Labor Day) would reinvigorate interest in the cryptocurrency markets, it has proven otherwise.
Key Takeaway #2
As previously reported, liquidity has been steadily diminishing, accompanied by a consistent decline in trading volumes.
Key Takeaway #3
Over the past month, the realized volatility has oscillated within the range of 35-40%.
Key Takeaway #4
Despite the lack of price action in the underlying price, Implied Volatility exhibited stability or a slight increase across most expirations this week.
If one had anticipated that the unofficial conclusion of the summer season (Labor Day) would reinvigorate interest in the cryptocurrency markets, it has proven otherwise.
As previously reported, liquidity has been steadily diminishing, accompanied by a consistent decline in trading volumes.
Over the past month, the realized volatility has oscillated within the range of 35-40%.
Despite the lack of price action in the underlying price, Implied Volatility exhibited stability or a slight increase across most expirations this week.
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If one had anticipated that the unofficial conclusion of the summer season (Labor Day) would reinvigorate interest in the cryptocurrency markets, it has proven otherwise. As previously reported, liquidity has been steadily diminishing, accompanied by a consistent decline in trading volumes. According to CCData's Wednesday report, crypto spot trading has reached its lowest point since March 2019. Furthermore, derivatives trading volume for the month of August also experienced a decline exceeding 10%. It appears that many participants are choosing to remain on the sidelines, awaiting regulatory decisions on spot Ethereum (ETH) and Bitcoin (BTC) ETF applications.
Over the past month, the realized volatility has oscillated within the range of 35-40%. Notably, there was a significant rally following the Grayscale ruling, which was subsequently retraced in just two days. While this move may not seem substantial on a week-to-week basis, it saw the markets fluctuate by 7.5%, 3.5%, and 4% over three days, ultimately settling nearly unchanged for the week. Since settling back to the levels of 26,000 for BTC and 1,650 for ETH, short-term implied volatility (IV) has consistently traded below realized volatility. This suggests that many market participants view the spike in realized volatility as a temporary anomaly and anticipate a reversion back to levels around the 30th percentile or lower.
Despite the overall market quietness this week, there were noteworthy developments in the options market. In the Ethereum options market, a notable overwriter (call seller) appeared to be covering their short positions in the September and October contracts, with resting bids for 44,000 contracts at the strike price of 1900 for September and 2100 for October. In the Bitcoin options market, front end skew continued to shift significantly toward puts, with substantial buying observed in the September 24,000 and December 20,000 put options. These actions are likely protection against long positions, serving as insurance against potential short-term downward moves in the market. If this skew trend persists and affects call skew in the options expiring in March or June 2024, it presents an excellent opportunity to gain upside exposure in anticipation of the BTC halving event.
Despite the lack of price action in the underlying price, Implied Volatility exhibited stability or a slight increase across most expirations this week. Notably, there is growing anticipation of potential market volatility in mid-October due to the impending deadlines for multiple ETF approvals and hearing requests. In light of these developments, we advise acquiring gamma/vega exposure in October and November, targeting dips in IV, in preparation for the outcomes of these impending decisions.
1 Month Realized vs Implied Volatility
• After seeing Realized Volatility dip into the teens in mid-August, we have seen a jump amid the large single-day moves of the past few weeks.
• Implied Volatility, after trading at a premium to RV, has leveled out in what seems like a comfortable level in the low 30s.
• As Implied Volatility is forward looking, the market appears to be anticipating more consolidation in the market and a return to lower realized volatility.
ATM IV Term Structure
• Despite a lack of change in underlying prices WoW, IV term structure is up slightly, with the exception in the belly of the ETH curve.
• Front end options present excellent value across the curves in both BTC and ETH, with a bevy of potential market movers in October.
• 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 remains basically unchanged WoW.
• ETH began the week higher, with sizable short end call covering seen on the screen, but reverted back toward 30% over the course of the week.
• Break-evens in both products are trading near historical lows and present excellent risk/reward.
BTC & ETH 25 Delta Skew (30 day)
• Skew continues to be more volatile than outright implied volatility.
• 30 day skew moved 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.
• Longer dated BTC skew has proven to be more resilient in anticipation of the halving next April. We are recommending buying call ratios (buy 2, sell 1) in the back end, should this front-end decline in call skew trickle into March or June 2024 options.
Front Month IV Curves
• 1 Month BTC 25 delta puts priced 4 vols over ATM, with 25 delta calls priced 0.5 vols over ATM.
• 1 Month ETH 25 delta puts priced 3.75 vols over ATM, with 25 delta calls priced 1.25 vols over ATM.
• Front month BTC skew has moved dramatically toward the puts as traders seek near term downside protection.
• Put skew remains in ETH and near at-the-money calls trade fairly flat to ATM IV. Wingy calls and puts trade at a significant premium, 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).
• Initially suggested as a long-term upside play, implied volatility has rallied on the move to 40.12%, resulting in a slight gain of $15 on the strategy despite a significant selloff in the futures market.
• We recommend holding the trade at current levels and looking to roll the strikes down (closer to at-the-money) should the selloff continue.
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.
If one had anticipated that the unofficial conclusion of the summer season (Labor Day) would reinvigorate interest in the cryptocurrency markets, it has proven otherwise. As previously reported, liquidity has been steadily diminishing, accompanied by a consistent decline in trading volumes. According to CCData's Wednesday report, crypto spot trading has reached its lowest point since March 2019. Furthermore, derivatives trading volume for the month of August also experienced a decline exceeding 10%. It appears that many participants are choosing to remain on the sidelines, awaiting regulatory decisions on spot Ethereum (ETH) and Bitcoin (BTC) ETF applications.
Over the past month, the realized volatility has oscillated within the range of 35-40%. Notably, there was a significant rally following the Grayscale ruling, which was subsequently retraced in just two days. While this move may not seem substantial on a week-to-week basis, it saw the markets fluctuate by 7.5%, 3.5%, and 4% over three days, ultimately settling nearly unchanged for the week. Since settling back to the levels of 26,000 for BTC and 1,650 for ETH, short-term implied volatility (IV) has consistently traded below realized volatility. This suggests that many market participants view the spike in realized volatility as a temporary anomaly and anticipate a reversion back to levels around the 30th percentile or lower.
Despite the overall market quietness this week, there were noteworthy developments in the options market. In the Ethereum options market, a notable overwriter (call seller) appeared to be covering their short positions in the September and October contracts, with resting bids for 44,000 contracts at the strike price of 1900 for September and 2100 for October. In the Bitcoin options market, front end skew continued to shift significantly toward puts, with substantial buying observed in the September 24,000 and December 20,000 put options. These actions are likely protection against long positions, serving as insurance against potential short-term downward moves in the market. If this skew trend persists and affects call skew in the options expiring in March or June 2024, it presents an excellent opportunity to gain upside exposure in anticipation of the BTC halving event.
Despite the lack of price action in the underlying price, Implied Volatility exhibited stability or a slight increase across most expirations this week. Notably, there is growing anticipation of potential market volatility in mid-October due to the impending deadlines for multiple ETF approvals and hearing requests. In light of these developments, we advise acquiring gamma/vega exposure in October and November, targeting dips in IV, in preparation for the outcomes of these impending decisions.
1 Month Realized vs Implied Volatility
• After seeing Realized Volatility dip into the teens in mid-August, we have seen a jump amid the large single-day moves of the past few weeks.
• Implied Volatility, after trading at a premium to RV, has leveled out in what seems like a comfortable level in the low 30s.
• As Implied Volatility is forward looking, the market appears to be anticipating more consolidation in the market and a return to lower realized volatility.
ATM IV Term Structure
• Despite a lack of change in underlying prices WoW, IV term structure is up slightly, with the exception in the belly of the ETH curve.
• Front end options present excellent value across the curves in both BTC and ETH, with a bevy of potential market movers in October.
• 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 remains basically unchanged WoW.
• ETH began the week higher, with sizable short end call covering seen on the screen, but reverted back toward 30% over the course of the week.
• Break-evens in both products are trading near historical lows and present excellent risk/reward.
BTC & ETH 25 Delta Skew (30 day)
• Skew continues to be more volatile than outright implied volatility.
• 30 day skew moved 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.
• Longer dated BTC skew has proven to be more resilient in anticipation of the halving next April. We are recommending buying call ratios (buy 2, sell 1) in the back end, should this front-end decline in call skew trickle into March or June 2024 options.
Front Month IV Curves
• 1 Month BTC 25 delta puts priced 4 vols over ATM, with 25 delta calls priced 0.5 vols over ATM.
• 1 Month ETH 25 delta puts priced 3.75 vols over ATM, with 25 delta calls priced 1.25 vols over ATM.
• Front month BTC skew has moved dramatically toward the puts as traders seek near term downside protection.
• Put skew remains in ETH and near at-the-money calls trade fairly flat to ATM IV. Wingy calls and puts trade at a significant premium, 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).
• Initially suggested as a long-term upside play, implied volatility has rallied on the move to 40.12%, resulting in a slight gain of $15 on the strategy despite a significant selloff in the futures market.
• We recommend holding the trade at current levels and looking to roll the strikes down (closer to at-the-money) should the selloff continue.
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.
