Last week kicked off with a strong bullish trend in the crypto markets. BTC saw a surge from $41,900 to $44,000, while ETH moved from $2,200 to $2,300. Interestingly, ETH sustained its momentum through Thursday, reaching even higher at $2,360. However, as the weekend approached, the action slowed down, culminating in a significant 7-10% downturn across all major crypto assets on Sunday night. The decline was particularly pronounced in BTC, as it swiftly and violently dropped from $44,000 to $40,000. Price quickly retracted by 50%, forming a large wick in the 4H candle, but the downward trajectory persisted into the following morning. Meanwhile, S&P futures demonstrated continued bullish momentum, now approaching all-time highs with price levels reaching $4,670.
Implied volatilities showed a consistent downward trend until last Friday. They gradually started to rise, until the move down last night, leading to a sharp upwards spike in volatilities. Currently, BTC front-end volatilities are in the range of 50-55, while at-the-money volatilities for January, March, and June 2024 stand at 52.25, 55.3, and 57.3, respectively. ETH at-the-money volatilities are notably higher across all expiries, with January, March, and June 2024 at 58.4, 60, and 62.24. It's also noteworthy that implied volatility skews have been dropping since the start of the month, even during the bullish trend. Both BTC and ETH implied volatility skew have essentially returned to zero.
As the year-end approaches, there appears to be a slowdown in bullish momentum, suggesting some profit-taking by traders. Gamma exposure in the Dec29 expiry has decreased since last week, indicating an unwinding or rolling of options positions. This reduction in gamma exposure may contribute to a decrease in momentum in price action. At the current pace this week, it seems that the intensity of the bull run has somewhat subsided, and a further correction may be on the horizon.
Digging Deeper - Volume Analytics
This week we see straddles / strangles taking first place in BTC combo spread volume on Deribit. Likely sellers of vol coming in and capitalizing on inflated volatilities. ETH interestingly showing diagonal spreads as coming in 1st, marking the 3rd week in a row that diagonal spreads dominate option spread trading activity.
BTC Combo Spread Volumes:
ETH Combo Spread Volumes:
***Data and insights as of December 11th, 2023 12:00:00 UTC
***Data and insights as of December 11th, 2023 12:00:00 UTC
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