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Last week's trend reversal appears to maintain a firm hold on the market. Following a $4,000 drop in Bitcoin's price, we retraced to $43,500 on Thursday, only to trend back down to the low $40,000s as the week unfolded. The correlation of crypto to the S&P 500 continues to hover near 0 levels. S&P futures displayed an almost opposite trend and volatility, commencing the week with a slight bullish trend, reaching $4,700, and surging over 2% on Wednesday to $4,790. The VIX (Volatility Index) remains around 12, close to the floor level of the 30-day implied volatility of SPY. While crypto spot activity does not necessarily show the most favorable directional movement, there is certainly plenty of volatility to capitalize on as a short term trader.
BTC implied volatilities experienced a parallel downward shift since last week, consistent with the market's persistent display of positive spot-vol correlation. Front-end volatility took a more pronounced hit, dropping by over 5 points and currently sitting at 45 vol. Jan26, Mar29, and Jun28 vols now stand at 52, 54.2, and 56.5, respectively. ETH at-the-money volatilities for the same expiries are at 56, 58, and 60. The considerable volume of calls/spreads being sold likely contributes to the depression in volatilities. As expected, implied volatility skew continues to decrease for ETH and remains around 0 for BTC. Notably, short-dated 25-delta skews turned negative, consistent with the sensitivity of short-dated volatility smiles/options to market prices and movements.
While spot volume appears to be marginally dropping, market volatility and activity show no signs of slowing down. It is becoming increasingly clear that the year will likely conclude with a bang.
Digging Deeper - Volume Analytics
This week diagonal spreads take first place in BTC and ETH combo spread volume on Deribit. Term structure based plays continue to hold favor with traders as steep slope and (relatively) expensive vol pervade the market.
BTC Combo Spread Volumes:
ETH Combo Spread Volumes:
***Data and insights as of December 18th, 2023 12:00:00 UTC
***Data and insights as of December 18th, 2023 12:00:00 UTC
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