Last week’s selloff resulted in a spike in 10 day realized volatility of over 20% in both BTC and ETH.
Key Takeaway #2
Implied volatility followed suit, albeit less dramatically, popping about 10-15% in the front end of the curves, while the back endsappreciated slightly.
Key Takeaway #3
Front end IV trickled in over the course of the week, while speculative call buying in March 24 and June 24 BTC supported the back end of the curve.
Key Takeaway #4
Last week’s selloff resulted in a spike in 10 day realized volatility of over 20% in both BTC and ETH.
Implied volatility followed suit, albeit less dramatically, popping about 10-15% in the front end of the curves, while the back endsappreciated slightly.
Front end IV trickled in over the course of the week, while speculative call buying in March 24 and June 24 BTC supported the back end of the curve.
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Just when you thought it was safe to go back in the water… last week’s selloff resulted in a spike in 10 day realized volatility of over 20% in both BTC and ETH. Implied volatility followed suit, albeit less dramatically, popping about 10-15% in the front end of the curves, while the back ends appreciated slightly. Market moves such as this are often followed with more volatility and the options market usually reflects that belief. However, as has been the case for much of 2023, big moves in cryptocurrencies seem to happen in a short span of time, often less than 24 hours. Liquidations occur, the market finds a level and proceeds to trade in a tight range, often for weeks or longer, until the next catalyst comes along to dictate a direction.
Front-end IV trickled in over the course of the week, while speculative call buying in March 24 and June 24 BTC supported the back end of the curve. These types of markets can be difficult to navigate for a short-term trader aiming to make money on gamma scalps and day trading. Tight ranges and one way flow make it difficult to turn a daily profit and defending that length can be cumbersome. Alternatively, when these markets consolidate after a move, it presents great opportunities for those with a broader outlook and longer-term strategy. Times of complacency and lulls in market activity are the optimal time to enter into a hedge or low risk / high reward trades. For those with long term conviction, we continue to advocate owning volatility at these levels.
ATM IV Term Structure
•Despite ETH experiencing more realized volatility this past week, BTC/ETH Implied Volatility spread widened.
•Contango in the curve steepened again as the market settled into atight range for most of the week.
•September options still present the best value across the curves in both BTC and ETH.
At-the-Money Front Month Daily Implied Volatility
•The front month rolled over this morning with August options expiring.
•Front month Implied Volatility trickled in for the first half of the week, experiencing a slightuptick Thursday as the futures markets rallied 3% off overnight lows.
•With little change Wow in underlying price, IV is poised to settle on the lows for the week.
•ETH Implied Volatility below 30% represents excellent value should we see further selling pressure.
BTC & ETH 25 Delta Skew (30 day)
•The put premium in ETH Skew we’ve witnessed for the past month remains, but is unchanged for the week.
•After months of positive call premium, BTC Skew broke toward the puts last Friday and remained in place for most of the week. With Thursday’s 3% rally, calls caught a slight bid, andskew managed to return slightly toward the calls before settling back to flatthis morning.
Front Month IV Curves
•1 Month BTC 25 delta puts priced 2.5 vols over ATM, with 25 delta calls priced 2.5 vols over ATM.
•1 Month ETH 25 delta puts priced 5.5 vols over ATM, with 25 delta calls priced 0.75 vols over ATM.
•BTC curve has flattened, removing the call skew we witnessed forthe past few months.
•Put skew remains in ETH and near at-the-money calls trade fairly flat to ATM IV. Wingy calls andputs trade at a significant premium, indicating a demand for tail risk options.
ETH 1x2 Call Spread Expiring March 2024
•We will continue to monitorour past two recommended trade strategies in the ETH March ‘24 contract.
•As an upside play, we suggested selling the $2100/$2500 1 by 2 call spread. (Selling the $2100 call, buying 2 $2500 calls).
•Initiating this trade while collecting a slight credit of $5 represented an excellent risk/reward profile. The downside is limited to $390, with unlimited upside and no premium outlay (slight credit).
•Despite the selloff of the past two days, implied volatility has rallied on the move to 41.45%, resulting in a slight gain of $10 on the strategy.
•We recommend holding the trade at current levels and looking to roll the strikes down (closer toat-the-money) should the selloff continue.
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.
•As a long vega trade with positive gamma, this structure has appreciated to a current value of $20.
•We view this as a long term strategy and recommend holding through year end and adding opportunistically.
Notable Headlines
First Mover Americas: Bitcoin Clings to $26K as Investors Await Powell’s Speech: https://www.coindesk.com/markets/2023/08/25/first-mover-americas-bitcoin-clings-to-26k-as-investors-await-powells-speech/
Surging US dollar index puts global currencies under pressure ahead of anticipated Powell address: https://cryptounfolded.com/news/surging-us-dollar-index-puts-global-currencies-under-pressure-ahead-of-anticipated-powell-address/
Grayscale’s spot Bitcoin ETF encounters further setback: https://crypto.news/grayscales-spot-bitcoin-etf-encounters-further-setback/
IRS spares crypto miners and validators in new broker reporting requirements: https://blockworks.co/news/irs-reporting-brokers
ArkInvest, 21Shares join the rush to launch ether futures ETFs: https://blockworks.co/news/ark-21shares-ethereum-etf
FTXTaps Galaxy to Sell, Stake and Hedge Its Crypto Billions: https://www.coindesk.com/policy/2023/08/24/ftx-taps-galaxy-to-sell-stake-and-hedge-its-crypto-billions/
AI Researchers Are Teaching Robots to Mimic Human Dexterity: https://decrypt.co/153646/ai-researchers-are-teaching-robots-to-mimic-human-dexterity
JPMorgan Sees Limited Downside for Crypto Markets in the Near Term: https://www.coindesk.com/markets/2023/08/25/jpmorgan-sees-limited-downside-for-crypto-markets-in-the-near-term/
Mastercard, Binance to end crypto card partnership: https://www.reuters.com/business/finance/mastercard-binance-end-crypto-card-partnership-2023-08-24/
Nvidia Market Cap Overtakes Crypto as Tokens Dip and AI Booms: https://decrypt.co/153645/nvidia-market-cap-overtakes-crypto-as-tokens-dip-and-ai-booms
Appendix: Glossary of Key Terms
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 underlyingfutures 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&Lvia gamma to offset daily theta.
Supportand 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 nonmarket-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 anytime 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 putoption at the same strike price and expiration date.
Strangle - an options trading strategy that involves buying both a call option and a putoption 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 ofBitOoda. This research is not intended to constitute an offer, solicitation, orinvitation for any securities and may not be distributed into jurisdictionswhere it is unlawful to do so. For additional disclosures and information,please contact a BitOoda representative at info@bitooda.io.
Analyst Certification
Vivek Raman, the research analyst denotedby an “AC” on the cover of this report, hereby certifies that all ofthe views expressed in this report accurately reflect his personal views, whichhave not been influenced by considerations of the firm’s business or clientrelationships.
Conflicts of Interest
This research contains the views,opinions, and recommendations of BitOoda. This report is intended for researchand educational purposes only. We are not compensated in any way based upon anyspecific view or recommendation.
General Disclosures
Any information (“Information”) providedby BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or OodaCommodities, LLC and its affiliated or related companies (collectively,“BitOoda”), either in this publication or document, in any other communication,or on or through http://www.bitooda.io/, including any information regardingproposed transactions or trading strategies, is for informational purposes onlyand is provided without charge. BitOoda is not and does not act as afiduciary 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 beingdistributed as part of BitOoda’s sales and marketing efforts as an introducingbroker and is incidental to its business as such. BitOoda seeks to earnexecution fees when its clients execute transactions using its brokerageservices.BitOoda makes no representations orwarranties (express or implied) regarding, nor shall it have any responsibilityor liability for the accuracy, adequacy, timeliness or completeness of, theInformation, and no representation is made or is to be implied that theInformation will remain unchanged. BitOoda undertakes no duty to amend,correct, update, or otherwise supplement the Information.
The Information has not been prepared ortailored to address, and may not be suitable or appropriate forthe particular financial needs, circumstances or requirements ofany person, and it should not be the basis for making any investment ortransaction decision. The Information is not a recommendation to engagein any transaction. The digital asset industry is subject to a range ofinherent risks, including but not limited to: price volatility, limited liquidity,limited and incomplete information regarding certain instruments, products, ordigital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressedin the Information is not a guide to future performance, nor is it a reliableindicator of future results or performance.
All derivatives brokerage is conductedby OodaCommodities, LLC a member of NFA and subject to NFA’s regulatory oversight andexaminations. However, you should be aware that NFA does not have regulatoryoversight authority over underlying or spot virtual currency products ortransactions or virtual currency exchanges, custodians or markets.
BitOoda Technologies, LLC is a member ofFINRA.
“BitOoda”, “BitOoda Difficulty”, “BitOodaHash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOodaHoldings, Inc.
Copyright 2023 BitOoda Holdings, Inc. Allrights reserved. No part of this material may be reprinted, redistributed, orsold without prior written consent of BitOoda.
Just when you thought it was safe to go back in the water… last week’s selloff resulted in a spike in 10 day realized volatility of over 20% in both BTC and ETH. Implied volatility followed suit, albeit less dramatically, popping about 10-15% in the front end of the curves, while the back ends appreciated slightly. Market moves such as this are often followed with more volatility and the options market usually reflects that belief. However, as has been the case for much of 2023, big moves in cryptocurrencies seem to happen in a short span of time, often less than 24 hours. Liquidations occur, the market finds a level and proceeds to trade in a tight range, often for weeks or longer, until the next catalyst comes along to dictate a direction.
Front-end IV trickled in over the course of the week, while speculative call buying in March 24 and June 24 BTC supported the back end of the curve. These types of markets can be difficult to navigate for a short-term trader aiming to make money on gamma scalps and day trading. Tight ranges and one way flow make it difficult to turn a daily profit and defending that length can be cumbersome. Alternatively, when these markets consolidate after a move, it presents great opportunities for those with a broader outlook and longer-term strategy. Times of complacency and lulls in market activity are the optimal time to enter into a hedge or low risk / high reward trades. For those with long term conviction, we continue to advocate owning volatility at these levels.
ATM IV Term Structure
•Despite ETH experiencing more realized volatility this past week, BTC/ETH Implied Volatility spread widened.
•Contango in the curve steepened again as the market settled into atight range for most of the week.
•September options still present the best value across the curves in both BTC and ETH.
At-the-Money Front Month Daily Implied Volatility
•The front month rolled over this morning with August options expiring.
•Front month Implied Volatility trickled in for the first half of the week, experiencing a slightuptick Thursday as the futures markets rallied 3% off overnight lows.
•With little change Wow in underlying price, IV is poised to settle on the lows for the week.
•ETH Implied Volatility below 30% represents excellent value should we see further selling pressure.
BTC & ETH 25 Delta Skew (30 day)
•The put premium in ETH Skew we’ve witnessed for the past month remains, but is unchanged for the week.
•After months of positive call premium, BTC Skew broke toward the puts last Friday and remained in place for most of the week. With Thursday’s 3% rally, calls caught a slight bid, andskew managed to return slightly toward the calls before settling back to flatthis morning.
Front Month IV Curves
•1 Month BTC 25 delta puts priced 2.5 vols over ATM, with 25 delta calls priced 2.5 vols over ATM.
•1 Month ETH 25 delta puts priced 5.5 vols over ATM, with 25 delta calls priced 0.75 vols over ATM.
•BTC curve has flattened, removing the call skew we witnessed forthe past few months.
•Put skew remains in ETH and near at-the-money calls trade fairly flat to ATM IV. Wingy calls andputs trade at a significant premium, indicating a demand for tail risk options.
ETH 1x2 Call Spread Expiring March 2024
•We will continue to monitorour past two recommended trade strategies in the ETH March ‘24 contract.
•As an upside play, we suggested selling the $2100/$2500 1 by 2 call spread. (Selling the $2100 call, buying 2 $2500 calls).
•Initiating this trade while collecting a slight credit of $5 represented an excellent risk/reward profile. The downside is limited to $390, with unlimited upside and no premium outlay (slight credit).
•Despite the selloff of the past two days, implied volatility has rallied on the move to 41.45%, resulting in a slight gain of $10 on the strategy.
•We recommend holding the trade at current levels and looking to roll the strikes down (closer toat-the-money) should the selloff continue.
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.
•As a long vega trade with positive gamma, this structure has appreciated to a current value of $20.
•We view this as a long term strategy and recommend holding through year end and adding opportunistically.
Notable Headlines
First Mover Americas: Bitcoin Clings to $26K as Investors Await Powell’s Speech: https://www.coindesk.com/markets/2023/08/25/first-mover-americas-bitcoin-clings-to-26k-as-investors-await-powells-speech/
Surging US dollar index puts global currencies under pressure ahead of anticipated Powell address: https://cryptounfolded.com/news/surging-us-dollar-index-puts-global-currencies-under-pressure-ahead-of-anticipated-powell-address/
Grayscale’s spot Bitcoin ETF encounters further setback: https://crypto.news/grayscales-spot-bitcoin-etf-encounters-further-setback/
IRS spares crypto miners and validators in new broker reporting requirements: https://blockworks.co/news/irs-reporting-brokers
ArkInvest, 21Shares join the rush to launch ether futures ETFs: https://blockworks.co/news/ark-21shares-ethereum-etf
FTXTaps Galaxy to Sell, Stake and Hedge Its Crypto Billions: https://www.coindesk.com/policy/2023/08/24/ftx-taps-galaxy-to-sell-stake-and-hedge-its-crypto-billions/
AI Researchers Are Teaching Robots to Mimic Human Dexterity: https://decrypt.co/153646/ai-researchers-are-teaching-robots-to-mimic-human-dexterity
JPMorgan Sees Limited Downside for Crypto Markets in the Near Term: https://www.coindesk.com/markets/2023/08/25/jpmorgan-sees-limited-downside-for-crypto-markets-in-the-near-term/
Mastercard, Binance to end crypto card partnership: https://www.reuters.com/business/finance/mastercard-binance-end-crypto-card-partnership-2023-08-24/
Nvidia Market Cap Overtakes Crypto as Tokens Dip and AI Booms: https://decrypt.co/153645/nvidia-market-cap-overtakes-crypto-as-tokens-dip-and-ai-booms
Appendix: Glossary of Key Terms
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 underlyingfutures 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&Lvia gamma to offset daily theta.
Supportand 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 nonmarket-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 anytime 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 putoption at the same strike price and expiration date.
Strangle - an options trading strategy that involves buying both a call option and a putoption 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 ofBitOoda. This research is not intended to constitute an offer, solicitation, orinvitation for any securities and may not be distributed into jurisdictionswhere it is unlawful to do so. For additional disclosures and information,please contact a BitOoda representative at info@bitooda.io.
Analyst Certification
Vivek Raman, the research analyst denotedby an “AC” on the cover of this report, hereby certifies that all ofthe views expressed in this report accurately reflect his personal views, whichhave not been influenced by considerations of the firm’s business or clientrelationships.
Conflicts of Interest
This research contains the views,opinions, and recommendations of BitOoda. This report is intended for researchand educational purposes only. We are not compensated in any way based upon anyspecific view or recommendation.
General Disclosures
Any information (“Information”) providedby BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or OodaCommodities, LLC and its affiliated or related companies (collectively,“BitOoda”), either in this publication or document, in any other communication,or on or through http://www.bitooda.io/, including any information regardingproposed transactions or trading strategies, is for informational purposes onlyand is provided without charge. BitOoda is not and does not act as afiduciary 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 beingdistributed as part of BitOoda’s sales and marketing efforts as an introducingbroker and is incidental to its business as such. BitOoda seeks to earnexecution fees when its clients execute transactions using its brokerageservices.BitOoda makes no representations orwarranties (express or implied) regarding, nor shall it have any responsibilityor liability for the accuracy, adequacy, timeliness or completeness of, theInformation, and no representation is made or is to be implied that theInformation will remain unchanged. BitOoda undertakes no duty to amend,correct, update, or otherwise supplement the Information.
The Information has not been prepared ortailored to address, and may not be suitable or appropriate forthe particular financial needs, circumstances or requirements ofany person, and it should not be the basis for making any investment ortransaction decision. The Information is not a recommendation to engagein any transaction. The digital asset industry is subject to a range ofinherent risks, including but not limited to: price volatility, limited liquidity,limited and incomplete information regarding certain instruments, products, ordigital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressedin the Information is not a guide to future performance, nor is it a reliableindicator of future results or performance.
All derivatives brokerage is conductedby OodaCommodities, LLC a member of NFA and subject to NFA’s regulatory oversight andexaminations. However, you should be aware that NFA does not have regulatoryoversight authority over underlying or spot virtual currency products ortransactions or virtual currency exchanges, custodians or markets.
BitOoda Technologies, LLC is a member ofFINRA.
“BitOoda”, “BitOoda Difficulty”, “BitOodaHash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOodaHoldings, Inc.
Copyright 2023 BitOoda Holdings, Inc. Allrights reserved. No part of this material may be reprinted, redistributed, orsold without prior written consent of BitOoda.
