Monday Alpha #27

TL;DR: BTC Spot ETF Options Approved, Vol is Meant to be Sold

Author

Marty
September 23, 2024

Monday Alpha

Please note that Premia does not provide investment advice, and nothing herein should be construed as such. Anyone considering trading or holding derivatives or crypto assets should be aware that the risk of loss can be very high, and it is upon each individual to seek advice from an appropriate professional advisor.

Premia and Archetype STIP incentives have now been distributed! If you’ve participated in either protocol lately, check your wallet and claim extra vault incentives.

TL;DR: BTC Spot ETF Options Approved, Vol Is Meant To Be Sold

BTC ATM IV

  • 1W: 49.43%

  • 1M: 49.39%

  • 3M: 58.66%

  • 6M: 61.35%

  • Index Price: $55,521

  • DVOL: 50.97

  • BVIV: 53.19

ETH ATM IV

  • 1W: 59.95%

  • 1M: 58.51%

  • 3M: 68.22%

  • 6M: 741.63%

  • Index Price: $2,668

  • DVOL: 60.92

  • EVIV: 63.74

Weekly Insights From GreeksLive

Some large notional volume traded the past week through Greeks.live Block Trade Marketplace! All of them being for the end of the month, and end of the quarter. We should start to see these plays roll into Nov8 expiry for U.S. Elections. Flows all over the place, not much discretional bias taken besides the put buyer. Bought puts at the bottom, a classic.

Marty’s Thoughts

Price up, vols down. This is a vol seller's regime. With options on the spot ETF now approved, there’s been a lot of chatter, so let’s break it down and do Marty's Thoughts first.

In the short term with new product offerings and elections around the corner, we might see both price and volatility rise. Over time, Bitcoin will become a lower vol product as the market matures. Currently, crypto options only extend up to one year, unlike traditional markets that offer contracts up to three years. As longer-dated options emerge, various structured products utilized by market participants will also further change the market. While Bitcoin once traded at 100+ vol, it now sits around the 50-60 handle, still much higher than the SPY 13 handle. Though vol is up on the year since ETF launch, this is a biased take… zoom out.

Institutional investors will drive this shift. Their strategies, like buying the asset, selling covered calls or various vol-selling strats, with rebalancing quarterly… naturally dampen vol. This results in buying BTC during dips and selling during rallies, muting extreme price movements. While short-term spikes in volatility may still occur around events, they will likely become less frequent as Bitcoin continues to grind up against the dollar and mature into a more stable asset.

2-Week Crypto Performance

Large Caps

Small Caps

2-Week Sector Performance

Last week, the FED surprised the market with a 50bps rate cut, sharply deviating from the widely expected 25bps cut. This shift led to a surge in prices across the board. The Crypto AI sector has led the charge over the past two weeks, with both crypto small and large caps seeing significant upward repricing. The FED also gave guidance at more rate cuts in the coming year and the next. In simple terms, when the FED cuts rates, borrowing becomes cheaper, encouraging more financial activity and investment. What does Arthur Hayes say?

YACHTZEE!

BTC & ETH Implied Volatility Term Structure

There's a notable kink in volatility ahead of the Nov 8th U.S. elections, with expectations that vols will rise as the Kamala vs. Trump race heats up. Personally, I have no strong feelings about the outcome. Some argue that one president may be better for the markets than the other, but in the end, it's a four-year cycle, zoom out… The markets move on.

Kamala is the current VP, and the stock market is at an all-time high, just as it was when Trump was in office. So, does it really matter who wins? They will both cut various taxes, push/fund agendas, and increase spending into various sectors they see fit.

Note: I find it very odd that people lose friends over an election cycle.

ETH & BTC At The Money Implied Volatility

Front-end slid off significantly following FOMC with nothing on the horizon outside of the US elections to keep an eye on.

BTC & ETH CME Annualized Basis

Basis is up this month sitting around a sweet 10%. Feel free to check out the article HERE to learn more about basis, and how you can take advantage and trade it. When basis starts to get attractive, start to check ETF inflows and CME Futures OI and keep an eye on this trade.

Wrap-Up

Recap:

  • YACHTZEE

  • Basis is back

  • BTC will become a lower vol product overtime

Trade on Premia: https://app.premia.blue/
Marty Community Telegram: https://t.me/optionswithmarty

Mind you there is never a paid group, all information is free and we will never ask you for money.

DeFi Options Premia

Join the next generation of Decentralized Finance with Premia and Archetype

Premia Blue is the first non-custodial options exchange with fully customizable options parameters and risk exposure.

Maximize capital efficiency, define your own risk, and optimize fees earned with Premia Blue on Arbitrum!

Reply

or to participate.