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Last week price action slowed down in BTC markets, topping out at $31,400 and subsequently dropping to the lower end of the daily range of $29,000. Derivatives market’s follow suit with implied volatility continuing to react to price action. At the money vols did react and push up slightly in the days to follow but ultimately continues to range between 47% - 50%. Term structure did steepen as the front end of the curve dropped slightly with July 28th ATM vol dropping 2 points to about 40 while September moved from 46.69 to 45.25. Further expiries like December and March showed no significant changes this week. Naturally, we see the skew adjusting to the downwards ranging price action and slightly dropping from last week’s level of 4 to about 2.5. Further dated expiries however exhibit much higher call side skew as the market is still buying upside vol.
Open Interest shows a slight increase in comparison to last week. Call buying certainly tapered down this week but Deribit trading volumes still show much higher activity in Calls vs Puts. For the most part, volume data indicates the market is still mostly selling shorter term vol and buying further dated upside vol. Block trade data shows the heaviest concentrations in Call Spreads (18.6% - 2,520.6), Put 1x2 ratio Spreads (16.8% - 2,282) and Straddles / Strangles (30.6% - 1840).
Deribit’s BTC DVOL index and historical vol begin to deviate again over the weekend, opening up some interesting possibilities for arbitrageurs and dynamic hedgers. It certainly will be interesting to keep an eye out on how the volatility structure develops as spot moves over the next few months, namely, will the market implied volatility bounce back up to normal 2022 levels, or is this 40 - 50 vol range the new regime for Bitcoin?
ETH experienced a very similar term structure steepening, as closer dated expiry vols dropped while longer dated stayed roughly the same. July and August actually dropped from 43.49 and 44.6 to 40.21 and 42 while September, December, and March moved from 46, 48.125, and 49.4 to 44, 48.68, and 51 (respectively). So we see the main changes in the curve being a drop in expiries before September and a rise in March. Volume data from Deribit and Paradigm support these shifts as we see big prints in further dated call spreads and vol selling in the nearer term.
ETH skew reacted much more negatively than BTC’s dropping back down to negative levels
and now oscillating around 0. It seems the ETH derivatives market also reflects the BTC dominance narrative as there is much less bullish vol buying and positive skew than seen in Bitcoin. Interestingly, Deribit shows majority concentrations in call selling for ETH, likely for nearer expiries. Block trade volume on Deribit shows an overwhelming majority in Call Spreads with a concentration of 73.3% comprising 14,250 contracts, with most of the remaining concentration in Stangles (23.1%, 4,500).
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