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As Bitcoin’s rally continues, Derivatives market’s follow suit with implied volatility continuing to react to price action. Interestingly, the volatility surface shows quite the steep term structure with nearer dated vols up to July 28th ranging from 38-42, and further dated vols sloping up from 42-52. July 28th ATM vol now sits at 42.6 and September, December, and March ATM vols moved from 46.69, 49.655 and 51.285, to 47.64, 49.995, and 51.40 respectively. This week the move up in price pushed the nearer dated implied vol curves more than further dated, leading to steepened term structure. Traders speculating on the term structure of volatility can certainly look at Calendar spread positions to take a view. For example, if one believes that the slope between July and September is too high, he/she can take a delta-neutral long vol position in July against a delta-neutral short vol position in September. An example of this would be a long July straddle vs a short September straddle.
Open Interest sharply dropped after the major expiry of June 30th. Interestingly enough, spot markets did not react too violently to this expiry apart from a sharp drop from $31,000 to $29,500 at around 1PM EST. According to Deribit, this past week showed a majority in regular volume being concentrated in calls, with 25,125 contracts being bought and 21,115 contracts sold. Block trade data shows the heaviest concentrations in Diagonal Call Spreads (23.1% - 2700), Straddles (19.1% - 2,205) and Vertical Call Spreads (15.9% - 1840). This activity explains both the bullish skew rising and the steepening term structure as activity is centered in bullish call based volatility.
In the midst of BTC’s bullish price action, ETH volatility smiles actually did not shift in tandem with BTC. July and August actually dropped from 45 and 45.82 to 43.49 and 44.6 while September, December, and March moved from 46.84, 49.71, and 51.32, to 46, 48.125, and 49.4 respectively. This actually shows a slight drop in ETH ATM implied volatility.
ETH skew however continued to oscillate and ultimately rise this week, agreeing with spot’s bullish momentum. ETH’s DVOL Index now shows a larger spread with historical vol as expected during last week’s moment of convergence. Deribit and Paradigm show dominance in call based vol activity with most of the largest prints focused in July and December. This past week Paradigm showed 45500 December 1900/2500 Call spreads bought, showing massive bullish interest in that expiry. Other large spreads taken this past week include Strangles (1200 contracts), Straddles (1010 contracts), and 1x2 Call ratio spreads (588 contracts)
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