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Last week mirrored the price movements of the preceding week. The week began with Bitcoin experiencing yet another $2,000 downward move, plummeting from $37,800 to $35,500, while ETH saw a decline from $2,070 to $1,930. Similarly to the preceding week, BTC prices retraced sharply by Wednesday night, reaching $38,500 on Thanksgiving night. As the weekend approached, price action decelerated and settled into a $300 range between $37,600 and $37,900. The March annualized basis on Deribit appears to demonstrate a notable correlation with price movements, currently standing at 9.7% annualized. S&P futures sustained an upward trajectory, peaking at $4,570, retracing to $4,544 on Tuesday, and subsequently rebounding to $4,580. It would be interesting to see if price action replicates this pattern in the forthcoming week.
Movement in implied volatilities last week was minimal. Both ETH and BTC At-the-money implied vols slightly dropped since last monday, with ETH vols exhibiting slightly steeper term structure. BTC vols for December, March, and June expiries sit at 50, 58.31, and 58.8 (50.11, 58.91, and 59.09 for ETH). Volatility skew remains steadily positive, and the derivatives market still heavily favors calls over puts of equal (absolute) delta. Open interest continues to climb around the $38,000 strike level and December expiry. Currently, there are almost 100,000 calls open and 49,000 puts open for Dec29 expiry.
Digging Deeper - Volume Analytics
The blend of sustained positive skew and a steep term structure makes it unsurprising that call spreads and diagonal spreads continue to dominate combo spread volume in both BTC and ETH. As discussed in previous weeks, heightened volatility skew renders call spreads a preferable choice over outrights. Moreover, a steep term structure fosters a favorable environment for calendar spreads (selling one month, buying the other). The combination of calls with different strikes and tenures results in a call diagonal spread. Despite Thanksgiving last week, the ETH derivative markets witnessed a staggering 41,000 call diagonal spread positions being transacted. This indicates that market participants were indeed capitalizing on the previously mentioned features of the volatility surface.
BTC Combo Spread Volumes:
ETH Combo Spread Volumes:
***Data and insights as of November 27th, 2023 12:00:00 UTC
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