The new year began with turbulence, as crypto markets witnessed a whiplash move that propelled BTC from $42,000 to $45,000, only to retrace sharply back down to $40,000 by the middle of last week. Despite this volatility BTC swiftly recovered reaching $45,000 again, signaling that substantial momentum remains intact. However, alt coins such as SOL and MATIC, experienced more pronounced downturns with declines exceeding 15%. Equities markets also saw a slight downtrend, though signs of recovery emerged as of this morning. BTC and ETH basis remain strong with annualized rates ranging from 10% to 15%, depending on the expiry date.
Shifting over to options markets, implied volatility has continued to trend higher in recent weeks. The market is now back up above 70 vol levels in BTC and ETH, finally reclaiming previously observed levels in 2022. At-the-money vols show a decreasing term structure with very short dated vols starting at 90 vol and decaying down to a flat level of 65 for BTC and 70 for ETH. Interestingly, even last week during the correction, skew levels have been steadily increasing. Average volatility skew was roughly 0 after long being positive, an indication that higher pricing of calls has waned, but since last week it has seen a somewhat strong drift upwards with average skew now sitting near 5. However, in the past week, it has exhibited a robust upward trend, with the average skew now hovering around 5. Examination of individual volatility smiles reveals that long-dated options continue to be priced favourably toward the call side.
It seems that the year ahead will not be without twists and turns. Implied volatilities are back up and market realized volatility certainly is as well. The road to ETF decisions will be a rocky one, and we can expect to see many options traders positioning themselves to play the new volatility structure present in the market.
Combo spread volumes in the previous week have been slightly depressed, not surprising to see given the lowered activity around the new year. As far as volume breakdowns, nothing out of the ordinary. Call spreads are still coming in on top, but straddles and strangles are also taking bigger chunks this week. Many participants are likely buying / selling vols at these levels.
BTC Combo Spread Volumes:
ETH Combo Spread Volumes:
***Data and insights as of January 8th, 2024 12:00:00 UTC
***Data and insights as of January 8th, 2024 12:00:00 UTC
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