Crypto Options Analytics, Feb. 12th, 2023
Disclaimer: Nothing here is trading advice or solicitation. This is for educational purposes only.
Math minded people here, pardon any typos.
Tuesday 8:30am - CPI
THE BIG PICTURE THEMES:
Tuesday’s CPI release is going to be a big number. Should CPI come in higher than expected, given the massive NFP surprise recently seen, this could prove quite bearish for risk assets.
Something to consider on the better-side of the CPI debate is the large drop in energy prices recently.
Natural gas is back near pre-conflict levels and WTI has seen a nice pull-back.
As I said in my recent interview on “The Misfit Happy Hour”, the massive rally early in 2023 has personally caught me a bit by surprise.
In the medium-term, I’m still cautious, given the big picture themes of yield curve inversion, de-globalization and shift in monetary policy, being a completely new environment for crypto.
Sticky inflation issues could break a lot of things.
BTC: $21,714 -5.64%
ETH :$1,506 -7.75%
SOL: $20.79 -11.77%
(Feb. 12th, 2023 - BTC Term Structure - Deribit)
Implied volatility has come down significantly, given the pull-back in spot prices.
Jan 2023 has seen the FOMO environment of positive spot/vol. correlation.
Macro events could flip that relationship back into a negative spot/vol. trend - which proved strong in 2022 - so I can easily see vol. move higher from here, no matter what spot does.
Going into this week’s CPI: buying IV into the event - as these levels seem like an interesting buy.
(Feb. 12th, 2023 - BTC RR SKEW (C-P) ∆25 - Deribit)
The current RR-skew term structure is split between positive and negative profiles.
To me, the obvious trade remains selling the long-term positive RR-Skew.
Negative short-term RR-Skew makes a lot of sense to me here, given the potential for a macro surprise.
(Feb. 12th, 2023 - BTC IV-RV)
VRP is thin, if even in existence at all.
Again, there’s a massive potential catalyst for RV to jump higher this week; buying volatility here seems obvious.
There’s almost no premium to IV and RV will likely be higher week-over-week with CPI (this isn’t a guarantee but possible and asymmetric to the vol. buyer)
PROPRIETARY “GVOL-DIRECTION” FLOWS - @Gravity5ucks
Volume down on Bitcoin after the excitement of the last few weeks.
Ethereum is confirmed on average. Notional: Bitcoin $2.6B vs Ethereum $2.3B.
(BTC vs ETH Weekly Volumes Notional - Options Deribit Historical Section)
Interim week without trade of great evidence. Some previously opened positions have been unwinded (calls $23k-$26k). Worth noting: the on-screen activity on 17FEB, with puts $22k/$21.5k bought with spot > $22k.
With the spot dropped below 23k, sales were concentrated in the $25k strike, indicating a major short term resistance.
(BTC AD Direction tables with uni_trade - Options Scanner section)
Interestingly also, heatmap for Ethereum highlights quite similar behavior of traders, with $1.8k sold as short term resistance (even if supposedly calendarized on screen, with $1.9k bought on April).
(ETH AD Direction tables with uni_trade - Options Scanner section)
Paradigm Block Insights (Feb 6th, 2023 - Feb 12th, 2023)
Crypto majors grind lower at the beginning of week - with downward momentum picking up on Thursday, as Kraken suspended staking services in response to SEC pressure.
BTC -5% / ETH -7% / NDX -2%
Flows mixed in BTC, as skew moved more in favor of puts this week. Decent bit of topside closed out early in the week:
1075x 24-Feb-23 24000 Call Sold
1000x 31-Mar-23 26000/30000 Call Spread bot
525x 31-Mar-23 26000 Call Sold
Large BTC calendars printed on Paradigm, open interest decreased in front month:
750x 31-Mar-23 26000 / 30-Jun-23 30000 Call Calendar bot
575x 31-Mar-23 25000 / 30-Jun-23 29000 Call Calendar bot
ETH flows quite bullish early in the week, with a large buyer of Friday 1700 calls in clips of 4-6k, and buyer of ETH Mar bullish risk reversals. A welcome change, given that most of the upside flow has been concentrated in BTC.
18000x 10-Feb-23 1700 Call Bought
10000x 31-Mar-23 1600/1700 Bull Risk Reversal Bought
9250x 10-Feb-23 1650 Put Sold
On Thursday, BTC vol selling picked up in Feb-Apr buckets, as spot broke the lows on the Kraken staking news.
Long dates also starting to see some focus, with Dec 40k calls sold at ~58.5v in clips of 3k vega.
Sold 425x 17-Feb-23 21500 Put
Sold 350x 17-Feb-23 22500/23000 Strangle
Sold 3750x 24-Feb-23 1800 Call
On Friday, finally some protection interest in ETH as spot started rolling over in the afternoon.
Interestingly, not much vol premium baked-in with 17Feb ATMs trading _v.
Bought 7500x 24-Feb-23 1500 Put
Bought 4500x 17-Feb-23 1400 Put
Bought 2500x 17-Feb-23 1500 Straddle
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Pricing Options correctly
Macro effects on $BTC
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Paradigm was 40% of @DeribitExchange BTC Options volumes in Jan, and is 44% so far in February.
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Lyra Weekly Review
Current ATM IV is ~55% in ETH, normalizing as upside momentum has stalled. Term structure is back in contango, with put skew trading at a premium.
Trading on Arbitrum and Optimism creates a new opportunity for arbitragers to balance skew and IV cross-chain. Puts continue to be more popular this week, with over 60% of the trading activity in puts.
TVL and Open Interest on Arbitrum have quickly overtaken those on Optimism.
Trading activity on Lyra has hit a massive milestone of $1 Billion in notional volume traded since inception!
ETH Market-Making Vault
The ETH MMV has returned +5.44% since its inception (June 28th, 2022), representing a weekly change of -0.05.
Annualized performance since inception is +8.47%
Depositors earn an additional 15.84% rewards APY, boosted up to 31.7% for LYRA Stakers on Optimism or 44.8% boosted up to 89.6% for LYRA Stakers on Arbitrum (new).
Net MMV Exposure:
Both ETH vaults return to long gamma, as seller activity picks up in the weeklies.
BTC Market-Making Vault
Lyra’s BTC MMV has returned +1.23% since its inception (August 16th, 2022). This represents a weekly change of -.05%. Annualized performance since inception is +2.49%
Depositors earn an additional 19.13% rewards APY (boosted up to 38.3% for LYRA Stakers)
Net BTC MMV Exposure:
Learn more about Lyra in this GVOL explainer video!
Watch @itseneff and @GenesisVol talk options here