Volatility Weekly

Volatility Update, 6/15/23 - Covered Call Strategies

BitOoda Crypto Market Report 6/15/23

Michael Tauckus

Key Takeaway #1

Key Takeaway #2

Key Takeaway #3

Key Takeaway #4

The Federal Reserve yesterday announced a pause in interest rate hikes, but indicated potential aggressive action later this year if warranted. Following some choppiness, the crypto market began a sell-off late Wednesday and into this morning. Currently, BTC and ETH are trading near 3 month lows at $25,095 and $1,644 respectively. Both are hovering near key support levels, and the uncertainty and potential for follow through to the downside has led to a jump in implied volatility. As discussed last week, ETH IV had been trading at especially low levels and has seen a jump in IV of 10% WoW, while BTC’s rally in IV is a bit more muted, up 4 % over the same period. Put skew is outperforming, as many seek protection from further downside movement.

Those with long volatility positions should feel comfortable, as the market moves are justifying the cost (theta) of gamma. With daily breakevens still hovering near the low end of the range, traders should feel comfortable maintaining a position of options length. Those looking to initiate new buys may wish to hold off until tomorrow afternoon. As is often the case ahead of a 3 day weekend, we find discounted premiums late Friday, with short vol traders selling options more aggressively, looking to capture the extra day of theta.

**Figures:** Underlying and volatility prices
**Sources:** Deribit, Paradigm, Coingecko

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The Federal Reserve yesterday announced a pause in interest rate hikes, but indicated potential aggressive action later this year if warranted. Following some choppiness, the crypto market began a sell-off late Wednesday and into this morning. Currently, BTC and ETH are trading near 3 month lows at $25,095 and $1,644 respectively. Both are hovering near key support levels, and the uncertainty and potential for follow through to the downside has led to a jump in implied volatility. As discussed last week, ETH IV had been trading at especially low levels and has seen a jump in IV of 10% WoW, while BTC’s rally in IV is a bit more muted, up 4 % over the same period. Put skew is outperforming, as many seek protection from further downside movement.

Those with long volatility positions should feel comfortable, as the market moves are justifying the cost (theta) of gamma. With daily breakevens still hovering near the low end of the range, traders should feel comfortable maintaining a position of options length. Those looking to initiate new buys may wish to hold off until tomorrow afternoon. As is often the case ahead of a 3 day weekend, we find discounted premiums late Friday, with short vol traders selling options more aggressively, looking to capture the extra day of theta.

ATM IV Term Structure

Week on week Implied Volatility has jumped, with the futures breaking down to key support levels
As noted a week ago, ETH IV historically trades at a premium to BTC. Last week’s BTC Vol premium has been erased and ETH now is trading 6 Vols over BTC
Front end volatility has appreciated relative to the back end but not significantly enough to recommend calendar spread length

**Figure:** Implied Volatility Term Structure for BTC & ETH
**Source:** Deribit, BitOoda

Parkinson realized volatility above implied volatility week on week

Parkinson realized volatility measures the magnitude of price movements in a market by considering the range between high and low prices. It assumes that volatility is directly related to the difference between the highest and lowest observed prices, exampled in ETH chart below.
This past week has seen above average intra-day price variance, creating profitable gamma scalping opportunities.
Daily break-evens are up slightly week on week, but still trading below historical averages.

**Figure:** ETH Parkinson Vol vs Implied Vol
**Source:** Amberdata

6/30 Expiry IV Curve

1 month BTC 25 delta puts priced 6.5 vol over ATM, with 25 delta calls priced 0.5 vols under ATM
1 month ETH 25 delta puts priced 6.5 vols over ATM, with 25 delta calls priced 1.4 vols under ATM
ETH at-the-money Implied Volatility trading at a 3% discount to BTC
Put skew continues to steepen as traders seek protection from a continued sell-off

**Figure:** Volatility smile for the April 28 Expiration for BTC & ETH
**Source:** Deribit, BitOoda

Notable Headlines

Bitcoin Drops To 3-Month Low Following Fed Rate Decision (Link)

BlackRock Close to Filing for Bitcoin ETF Application: Source (Link)

U.S. Judge Rebuffs SEC Request for Binance.US Asset Freeze for Now (Link)

Crypto Exchange Binance Rolls Out Bitcoin Cloud Mining Service to Users (Link)

Ethereum, Cardano, and Dogecoin Lead Weekly Crypto Losses (Link)

AI Gold Rush: Generative AI Poised to Pump $4.4 Trillion Into Global Economy Annually (Link)

Aave's Decentralized Social Media Platform Lens Protocol Releases New Governance Model (Link)

Fed Leaves Policy on Hold, Ending Long String of Rate Hikes (Link)

Fed's hawkishness dampens Ethereum price (Link)

Coinbase to make self-custody ‘secure and easy to use’ with Block’s Bitkey (Link)

SEC responds to Coinbase’s second request for action: ‘Still no’ (Link)

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Analyst Certification

Michael Tauckus, the author 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.

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The Federal Reserve yesterday announced a pause in interest rate hikes, but indicated potential aggressive action later this year if warranted. Following some choppiness, the crypto market began a sell-off late Wednesday and into this morning. Currently, BTC and ETH are trading near 3 month lows at $25,095 and $1,644 respectively. Both are hovering near key support levels, and the uncertainty and potential for follow through to the downside has led to a jump in implied volatility. As discussed last week, ETH IV had been trading at especially low levels and has seen a jump in IV of 10% WoW, while BTC’s rally in IV is a bit more muted, up 4 % over the same period. Put skew is outperforming, as many seek protection from further downside movement.

Those with long volatility positions should feel comfortable, as the market moves are justifying the cost (theta) of gamma. With daily breakevens still hovering near the low end of the range, traders should feel comfortable maintaining a position of options length. Those looking to initiate new buys may wish to hold off until tomorrow afternoon. As is often the case ahead of a 3 day weekend, we find discounted premiums late Friday, with short vol traders selling options more aggressively, looking to capture the extra day of theta.

ATM IV Term Structure

Week on week Implied Volatility has jumped, with the futures breaking down to key support levels
As noted a week ago, ETH IV historically trades at a premium to BTC. Last week’s BTC Vol premium has been erased and ETH now is trading 6 Vols over BTC
Front end volatility has appreciated relative to the back end but not significantly enough to recommend calendar spread length

Parkinson realized volatility above implied volatility week on week

Parkinson realized volatility measures the magnitude of price movements in a market by considering the range between high and low prices. It assumes that volatility is directly related to the difference between the highest and lowest observed prices, exampled in ETH chart below.
This past week has seen above average intra-day price variance, creating profitable gamma scalping opportunities.
Daily break-evens are up slightly week on week, but still trading below historical averages.

6/30 Expiry IV Curve

1 month BTC 25 delta puts priced 6.5 vol over ATM, with 25 delta calls priced 0.5 vols under ATM
1 month ETH 25 delta puts priced 6.5 vols over ATM, with 25 delta calls priced 1.4 vols under ATM
ETH at-the-money Implied Volatility trading at a 3% discount to BTC
Put skew continues to steepen as traders seek protection from a continued sell-off