The long-anticipated moment in the cryptocurrency market finally materialized this week.
Key Takeaway #2
Following months of range-bound trading and head fakes to the upside, the markets have experienced a resurgence of interest, largely driven by the growing optimism surrounding the potential approval of spot Bitcoin ETFs.
Key Takeaway #3
The positive correlation between futures and Implied Volatility (IV) continued to hold, with the front end of the curve witnessing a robust 5% increase from Friday's closing levels.
Key Takeaway #4
To capitalize on this elevated call skew before the weekend, we recommend considering buying a covered ETH call butterfly strategy. While we expect further volatility as the market awaits more clarity from regulators, long players looking to reduce Vega exposure should consider selling an Iron Condor in the middle of the curve.
The long-anticipated moment in the cryptocurrency market finally materialized this week. Following months of range-bound trading and head fakes to the upside, the markets have experienced a resurgence of interest, largely driven by the growing optimism surrounding the potential approval of spot Bitcoin ETFs. Building on the momentum in the previous week, the market saw a surge in aggressive buying activity in both Bitcoin (BTC) and Ethereum (ETH) over the weekend, marking the commencement of a market rally.
The positive correlation between futures and Implied Volatility (IV) continued to hold, with the front end of the curve witnessing a robust 5% increase from Friday's closing levels. Despite this surge in volatility, we observed some profit-taking activities with paper selling October and December calls in BTC. Conversely, the ETH call overwriter was actively covering their short positions, particularly in the 1600 and 1650 calls for November, with a continued trend of covering November 1700 and December 1800 calls, totaling over 200,000 contracts.
The timing of these actions proved to be quite astute, as shortly after Monday's settlement, the markets experienced a rapid 8% rally in less than five minutes, reaching new year-to-date highs of 35,000 for BTC and 1,850 for ETH. This rally triggered a surge in options trading volumes, as short premium players rushed to cover their positions, causing a 7% increase in IV in the front end. A significant portion of this price movement was attributed to liquidations related to short BTC gamma covering, leading to a year-to-date low in the Ethereum/Bitcoin spot spread as ETH lagged behind.
IV soared to the low 60s for BTC and high 50s for ETH, with notable interest in outright contracts and upside call spreads. Notably, despite Bitcoin's greater Realized Volatility, IVs moved in tandem throughout the week, suggesting that order flow is the primary driver of IV in these markets, rather than actual price movement.
In the BTC market, we observed some profit-taking strategies, where traders chose to sell call spreads and roll their options to higher strike prices instead of liquidating their positions. Notable rolls were seen in the December 34/40 and 35/40 call spreads, allowing traders to lock in profits while maintaining a bullish outlook.
Midweek, IV took a pause, with BTC around 50% and ETH around 45%, as the market rally appeared to lose momentum. BTC options trading activity focused primarily on closing out near-expiration positions, while ETH continued to witness bullish sentiment, with fresh upside call buying, further reinforcing the sustained call skew observed in ETH.
Of particular interest, ETH 's front-end call skew is trading at a premium vs. BTC, indicating that traders may believe the ETH/BTC spot spread may be approaching a bottom.
To capitalize on this elevated call skew before the weekend, we recommend considering buying a covered ETH call butterfly strategy. While we expect further volatility as the market awaits more clarity from regulators, long players looking to reduce Vega exposure should consider selling an Iron Condor in the middle of the curve.
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The long-anticipated moment in the cryptocurrency market finally materialized this week. Following months of range-bound trading and head fakes to the upside, the markets have experienced a resurgence of interest, largely driven by the growing optimism surrounding the potential approval of spot Bitcoin ETFs. Building on the momentum in the previous week, the market saw a surge in aggressive buying activity in both Bitcoin (BTC) and Ethereum (ETH) over the weekend, marking the commencement of a market rally.
The positive correlation between futures and Implied Volatility (IV) continued to hold, with the front end of the curve witnessing a robust 5% increase from Friday's closing levels. Despite this surge in volatility, we observed some profit-taking activities with paper selling October and December calls in BTC. Conversely, the ETH call overwriter was actively covering their short positions, particularly in the 1600 and 1650 calls for November, with a continued trend of covering November 1700 and December 1800 calls, totaling over 200,000 contracts.
The timing of these actions proved to be quite astute, as shortly after Monday's settlement, the markets experienced a rapid 8% rally in less than five minutes, reaching new year-to-date highs of 35,000 for BTC and 1,850 for ETH. This rally triggered a surge in options trading volumes, as short premium players rushed to cover their positions, causing a 7% increase in IV in the front end. A significant portion of this price movement was attributed to liquidations related to short BTC gamma covering, leading to a year-to-date low in the Ethereum/Bitcoin spot spread as ETH lagged behind.
IV soared to the low 60s for BTC and high 50s for ETH, with notable interest in outright contracts and upside call spreads. Notably, despite Bitcoin's greater Realized Volatility, IVs moved in tandem throughout the week, suggesting that order flow is the primary driver of IV in these markets, rather than actual price movement.
In the BTC market, we observed some profit-taking strategies, where traders chose to sell call spreads and roll their options to higher strike prices instead of liquidating their positions. Notable rolls were seen in the December 34/40 and 35/40 call spreads, allowing traders to lock in profits while maintaining a bullish outlook.
Midweek, IV took a pause, with BTC around 50% and ETH around 45%, as the market rally appeared to lose momentum. BTC options trading activity focused primarily on closing out near-expiration positions, while ETH continued to witness bullish sentiment, with fresh upside call buying, further reinforcing the sustained call skew observed in ETH.
Of particular interest, ETH 's front-end call skew is trading at a premium vs. BTC, indicating that traders may believe the ETH/BTC spot spread may be approaching a bottom.
To capitalize on this elevated call skew before the weekend, we recommend considering buying a covered ETH call butterfly strategy. While we expect further volatility as the market awaits more clarity from regulators, long players looking to reduce Vega exposure should consider selling an Iron Condor in the middle of the curve.
1 Month Realized Volatility BTC vs ETH
• After 3 weeks of ETH realized volatility outpacing BTC, the spread has flipped and continues to widen.
• Despite the significant difference in realized volatility, implied vols moved in parallel this week.
• BTC realized vol for the week is now above ETH by a little almost 6%.
ATM IV Term Structure
• Slight contango in both majors remains, but has flattened with this week’s rally in underlying price.
• The IV spread between BTC and ETH narrowed slightly this week but remains across all expirations.
• The term structure will likely mimic spot price with the front end rallying on up moves and coming in on pull backs.
At-the-Money Front Month Daily Implied Volatility
• Front month IV had a significant rally this week, trading out over 20% Wow at the highs.
• Markets have stabilized and implied volatility has followed suit over the course of the week.
• The strength in the BTC/ETH implied volatility spread remains and will likely stay in place until a final ruling is made regarding spot BTC ETFs.
BTC & ETH 25 Delta Skew (30 day)
• On the heels of the rally in underlying price, skew has reverted back toward the calls in both majors.
• This is a strong indication that much of the paper flow in cryptos is currently speculative paper, bidding calls on rallies and puts on selloffs.
• Despite some call profit taking from paper, call skew remained strong throughout the week with speculative interest accumulating new upside length.
Front Month IV Curves
• 1 month BTC 25 delta puts priced .5 vols under ATM, with 25 delta calls priced 4 vols over ATM.
• 1 month ETH 25 delta puts priced .5 vols under ATM, with 25 delta calls priced 3.5 vols under ATM.
• Skew has shifted significantly last week toward the calls and remained in effect throughout the week.
• Despite the significant rally this week, skew Wow is little changed.
ETH 1x2 Call Spread Expiring March 2024
• We will continue to monitor our past two recommended trade strategies in the ETH March ‘24 contract.
• We suggested selling the $2100/$2500 1 by 2 call spread (selling the $2100 call, buying 2 $2500 calls) at flat premium. Subsequently, we rolled this strategy closer to at-the-money at flat premium into the $1800/$2100 strikes.
• After rolling, the current position is short 1 March ‘24 $1800 call and long 2 $2100 calls.
• ATM implied volatility in March ’24 rallied significantly this week, trading as high as 55%, but has since pulled back to 51%, up 7 vols on the week.
• The trade currently has a profit of $70. This strategy has accumulated a long delta on the rally. Butterflying the trade with a sale of the $2400 call is an excellent way to lock in profits and mitigate the delta risk. Those with a bullish nature should remain in the trade and look to roll the strikes higher on the next leg up.
ETH 1x2 Iron Butterfly Expiring March 2024
• Monitoring our second recommended strategy of selling one March $1900 Straddle and buying two $1600/$2200 Strangles:
• Similar to the call spread ratio, there was zero outlay of premium.
• Currently this iron butterfly ratio has a profit of $25.
• We view this as a long-term strategy and recommend holding through year end.
Implied Volatility - represents the market's expectation of future price fluctuations and is a key metric employed to price options contracts.
Realized Volatility - also known as historical volatility, this measures past market changes and their actual results.
Delta - a measure of the change in value of an option given a change in the underlying futures contract.
Vega - a measure of an option's price sensitivity to changes in implied volatility.
Gamma - a measure of the rate of change in delta given a change in the underlying futures contract.
Theta - a measure of the rate of decline in the value of an option over time.
Rho - the amount a theoretical option’s price will change for a corresponding one percentage-point change in the interest rate used to price the option contract.
Implied Volatility Curve - a U-shaped graphical representation of the pattern created by the implied volatilities of multiple options contracts with the same expiration date.
Term structure of Volatility Curve - the curve depicting the differing implied volatilities of options with the same strike price but different maturities.
Break-even - the amount of underlying movement the trader needs to capture in hedged P&L via gamma to offset daily theta.
Support and Resistance - key price levels in technical analysis that indicate the levels at which buying or selling pressure is likely to be strong enough to prevent the price from moving below or beyond that level.
Paper - institutional player, producer or hedger, a non market-maker.
Call - an option that gives the buyer the right, but not the obligation, to buy the underlying asset at the strike price any time before it expires.
Put - an option that gives the buyer the right, but not the obligation, to sell the underlying asset at the strike price any time before it expires.
Roll - to simultaneously close one option position and open another with the same commodity but a different strike price and/or expiration month.
Straddle - an options trading strategy that involves buying both a call option and a put option at the same strike price and expiration date.
Strangle - an options trading strategy that involves buying both a call option and a put option at different strike prices but with the same expiration date.
Put Spread - an options trading strategy that involves buying a put option at a specific strike price and selling another put option at a lower strike price, both with the same expiration date.
Call Spread - an options trading strategy that involves buying a call option at a specific strike price and selling another call option at a higher strike price, both with the same expiration date.
Iron Condor - an options trading strategy that involves simultaneously buying equidistant out-of-the-money call spreads and put spreads.
Call/Put Calendar - an options trading strategy that involves buying an option at a specific strike and selling an option at the same strike across different expirations.
Butterfly - an options trading strategy that involves buying one low strike and one high strike option and selling two middle strike options.
Iron Fly - an options trading strategy that involves buying and selling three options at the same expiration date and strike price. The strategy consists of buying one call option and one put option at the middle strike price, and selling two options at different strike prices that are equidistant from the middle strike price
Disclosures
Purpose
This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.
Analyst Certification
Michael Tauckus, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.
Conflicts of Interest
This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.
General Disclosures
Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or throughhttp://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such.BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.
The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance.
All derivatives brokerage is conducted byOoda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.
BitOoda Technologies, LLC is a member of FINRA.
“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.
Copyright 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.
The long-anticipated moment in the cryptocurrency market finally materialized this week. Following months of range-bound trading and head fakes to the upside, the markets have experienced a resurgence of interest, largely driven by the growing optimism surrounding the potential approval of spot Bitcoin ETFs. Building on the momentum in the previous week, the market saw a surge in aggressive buying activity in both Bitcoin (BTC) and Ethereum (ETH) over the weekend, marking the commencement of a market rally.
The positive correlation between futures and Implied Volatility (IV) continued to hold, with the front end of the curve witnessing a robust 5% increase from Friday's closing levels. Despite this surge in volatility, we observed some profit-taking activities with paper selling October and December calls in BTC. Conversely, the ETH call overwriter was actively covering their short positions, particularly in the 1600 and 1650 calls for November, with a continued trend of covering November 1700 and December 1800 calls, totaling over 200,000 contracts.
The timing of these actions proved to be quite astute, as shortly after Monday's settlement, the markets experienced a rapid 8% rally in less than five minutes, reaching new year-to-date highs of 35,000 for BTC and 1,850 for ETH. This rally triggered a surge in options trading volumes, as short premium players rushed to cover their positions, causing a 7% increase in IV in the front end. A significant portion of this price movement was attributed to liquidations related to short BTC gamma covering, leading to a year-to-date low in the Ethereum/Bitcoin spot spread as ETH lagged behind.
IV soared to the low 60s for BTC and high 50s for ETH, with notable interest in outright contracts and upside call spreads. Notably, despite Bitcoin's greater Realized Volatility, IVs moved in tandem throughout the week, suggesting that order flow is the primary driver of IV in these markets, rather than actual price movement.
In the BTC market, we observed some profit-taking strategies, where traders chose to sell call spreads and roll their options to higher strike prices instead of liquidating their positions. Notable rolls were seen in the December 34/40 and 35/40 call spreads, allowing traders to lock in profits while maintaining a bullish outlook.
Midweek, IV took a pause, with BTC around 50% and ETH around 45%, as the market rally appeared to lose momentum. BTC options trading activity focused primarily on closing out near-expiration positions, while ETH continued to witness bullish sentiment, with fresh upside call buying, further reinforcing the sustained call skew observed in ETH.
Of particular interest, ETH 's front-end call skew is trading at a premium vs. BTC, indicating that traders may believe the ETH/BTC spot spread may be approaching a bottom.
To capitalize on this elevated call skew before the weekend, we recommend considering buying a covered ETH call butterfly strategy. While we expect further volatility as the market awaits more clarity from regulators, long players looking to reduce Vega exposure should consider selling an Iron Condor in the middle of the curve.
1 Month Realized Volatility BTC vs ETH
• After 3 weeks of ETH realized volatility outpacing BTC, the spread has flipped and continues to widen.
• Despite the significant difference in realized volatility, implied vols moved in parallel this week.
• BTC realized vol for the week is now above ETH by a little almost 6%.
ATM IV Term Structure
• Slight contango in both majors remains, but has flattened with this week’s rally in underlying price.
• The IV spread between BTC and ETH narrowed slightly this week but remains across all expirations.
• The term structure will likely mimic spot price with the front end rallying on up moves and coming in on pull backs.
At-the-Money Front Month Daily Implied Volatility
• Front month IV had a significant rally this week, trading out over 20% Wow at the highs.
• Markets have stabilized and implied volatility has followed suit over the course of the week.
• The strength in the BTC/ETH implied volatility spread remains and will likely stay in place until a final ruling is made regarding spot BTC ETFs.
BTC & ETH 25 Delta Skew (30 day)
• On the heels of the rally in underlying price, skew has reverted back toward the calls in both majors.
• This is a strong indication that much of the paper flow in cryptos is currently speculative paper, bidding calls on rallies and puts on selloffs.
• Despite some call profit taking from paper, call skew remained strong throughout the week with speculative interest accumulating new upside length.
Front Month IV Curves
• 1 month BTC 25 delta puts priced .5 vols under ATM, with 25 delta calls priced 4 vols over ATM.
• 1 month ETH 25 delta puts priced .5 vols under ATM, with 25 delta calls priced 3.5 vols under ATM.
• Skew has shifted significantly last week toward the calls and remained in effect throughout the week.
• Despite the significant rally this week, skew Wow is little changed.
ETH 1x2 Call Spread Expiring March 2024
• We will continue to monitor our past two recommended trade strategies in the ETH March ‘24 contract.
• We suggested selling the $2100/$2500 1 by 2 call spread (selling the $2100 call, buying 2 $2500 calls) at flat premium. Subsequently, we rolled this strategy closer to at-the-money at flat premium into the $1800/$2100 strikes.
• After rolling, the current position is short 1 March ‘24 $1800 call and long 2 $2100 calls.
• ATM implied volatility in March ’24 rallied significantly this week, trading as high as 55%, but has since pulled back to 51%, up 7 vols on the week.
• The trade currently has a profit of $70. This strategy has accumulated a long delta on the rally. Butterflying the trade with a sale of the $2400 call is an excellent way to lock in profits and mitigate the delta risk. Those with a bullish nature should remain in the trade and look to roll the strikes higher on the next leg up.
ETH 1x2 Iron Butterfly Expiring March 2024
• Monitoring our second recommended strategy of selling one March $1900 Straddle and buying two $1600/$2200 Strangles:
• Similar to the call spread ratio, there was zero outlay of premium.
• Currently this iron butterfly ratio has a profit of $25.
• We view this as a long-term strategy and recommend holding through year end.
Implied Volatility - represents the market's expectation of future price fluctuations and is a key metric employed to price options contracts.
Realized Volatility - also known as historical volatility, this measures past market changes and their actual results.
Delta - a measure of the change in value of an option given a change in the underlying futures contract.
Vega - a measure of an option's price sensitivity to changes in implied volatility.
Gamma - a measure of the rate of change in delta given a change in the underlying futures contract.
Theta - a measure of the rate of decline in the value of an option over time.
Rho - the amount a theoretical option’s price will change for a corresponding one percentage-point change in the interest rate used to price the option contract.
Implied Volatility Curve - a U-shaped graphical representation of the pattern created by the implied volatilities of multiple options contracts with the same expiration date.
Term structure of Volatility Curve - the curve depicting the differing implied volatilities of options with the same strike price but different maturities.
Break-even - the amount of underlying movement the trader needs to capture in hedged P&L via gamma to offset daily theta.
Support and Resistance - key price levels in technical analysis that indicate the levels at which buying or selling pressure is likely to be strong enough to prevent the price from moving below or beyond that level.
Paper - institutional player, producer or hedger, a non market-maker.
Call - an option that gives the buyer the right, but not the obligation, to buy the underlying asset at the strike price any time before it expires.
Put - an option that gives the buyer the right, but not the obligation, to sell the underlying asset at the strike price any time before it expires.
Roll - to simultaneously close one option position and open another with the same commodity but a different strike price and/or expiration month.
Straddle - an options trading strategy that involves buying both a call option and a put option at the same strike price and expiration date.
Strangle - an options trading strategy that involves buying both a call option and a put option at different strike prices but with the same expiration date.
Put Spread - an options trading strategy that involves buying a put option at a specific strike price and selling another put option at a lower strike price, both with the same expiration date.
Call Spread - an options trading strategy that involves buying a call option at a specific strike price and selling another call option at a higher strike price, both with the same expiration date.
Iron Condor - an options trading strategy that involves simultaneously buying equidistant out-of-the-money call spreads and put spreads.
Call/Put Calendar - an options trading strategy that involves buying an option at a specific strike and selling an option at the same strike across different expirations.
Butterfly - an options trading strategy that involves buying one low strike and one high strike option and selling two middle strike options.
Iron Fly - an options trading strategy that involves buying and selling three options at the same expiration date and strike price. The strategy consists of buying one call option and one put option at the middle strike price, and selling two options at different strike prices that are equidistant from the middle strike price
Disclosures
Purpose
This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.
Analyst Certification
Michael Tauckus, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.
Conflicts of Interest
This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.
General Disclosures
Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or throughhttp://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such.BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.
The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance.
All derivatives brokerage is conducted byOoda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.
BitOoda Technologies, LLC is a member of FINRA.
“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.
Copyright 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.
