Crypto Options Analytics, Feb. 21st, 2021

Headline Theme: "Large IV/RV premiums for both BTC & ETH"

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BAM! Bitcoin’s monster rally is still going.

Spot prices are now beyond $50k by a healthy margin., $57k at the time of this writing.

Let’s see what vol. has been doing.

SKEWS

(Feb. 21, 2021 - Short-term and Medium Term BTC Skews - Deribit)

Despite the extreme spot prices, we’ve actually seen a DECREASE in implied volatility since last week.

Skews are holding a similar shape compared to last week.

We’re seeing expensive put “tails” for the -.10 delta area across are expiration cycles.

This put premium is likely due to trader’s hedging the risk of a sharp pullback in spot prices.

The .30 delta range remains bid to the call side, reflecting the current upside volatility.

(Feb. 21, 2021 - Long Dated BTC Skews - Deribit)

Longer term expirations are showing a more pronounced .30 delta call skew.

TERM STRUCTURE

(Feb. 21, 2021 - BTC Term Structure - Deribit)

Something fascinating and surprising has been the drop in IV across the term.

Despite the continuation of this monster rally, options have dropped about 5-10 IV points.

The current backwardation reflects the ongoing relatively high volatility.

ATM/SKEW

(Feb. 21, 2021 - BTC ATM & Skews for options 10-60days out - Deribit)

ATM volatility shows the rather large drop in IV.

Skew also remains tame, especially compared to December and January levels.

There is a very SLIGHT premium in skew, reflecting a loss in FOMO demand and a pickup in protective put demand.

VOLUME

(Feb. 21, 2021 - BTC Premium Traded - Deribit)

(Feb. 21, 2021 - BTC Contracts Traded - Deribit)

Volume activity is indeed showing a pickup over the past few days.

This is to be expected with the new spot price levels inviting participation and price discovery.

We do note that major volume witnessed in January remains to be seen again.

VOLATILITY CONE

(Feb. 21, 2021 - BTC Volatility Cone)

We’re seeing large drops in RV.

It’s important to note that RV is percentage based and therefore $5,000 swings are NEEDED to keep RV elevated in a $57k asset.

REALIZED & IMPLIED

(Feb. 21, 2021 - BTC 10-day Realized and Trade Weighted Implied Vol - Deribit)

Notice the extremely large premium for IV versus RV.

Is this justified? Are we finally witnessing a juicy premium worth selling?

Something to keep in mind right now… Any day we could see a surprise announcement such as AAPL allocation $5B of their balance sheet to BTC. Those types of risks are important to note for vol. sellers.

SKEWS

(Feb. 21, 2021 - ETH Skews - Deribit)

ETH skews have a much more pronounced NIKE swoosh.

This reflects the option market’s increased desire for ETH call volatility compared to BTC options.

Judging by the relative differential between the two markets we can see an optimism for ETH spot prices.

(Feb. 21, 2021 - ETH Skews - Deribit)

Longer term options are showing a similar profile to BTC.

TERM STRUCTURE

(Feb. 21, 2021 - ETH Term Structure - Deribit)

Compared to last week the term structure is identical.

We’ve displayed the forward volatility (blue) to highlight the relatively rich March 26th IV premium.

For whatever reason 3/26 seems to be an outlier and remains the most appealing volatility to sell.

ATM/SKEW

(Feb. 21, 2021 - ETH ATM & Skews for options 10-60days out - Deribit)

ETH skews have a little more variance than BTC skews.

ETH skews are typically much higher than the current reading.

Volatility seems rather stable here despite the overall high level of 125%.

VOLUME 

(Feb. 21, 2021 - ETH Premium Traded - Deribit)

(Feb. 21, 2021 - ETH Contracts Traded - Deribit)

Although ETH option volumes pale in comparison to BTC volumes, there seems to be steady demand.

We hope that ETH option volumes will increase overall, especially with the new CME future inviting new institutional participation in ETH.

VOLATILITY CONE

(Feb. 21, 2021 - ETH Volatility Cone)

ETH had a VERY hard time trading above the $2,000 level.

We saw a large volatility squash last week as ETH consolidated below $2k.

REALIZED & IMPLIED

(Feb. 21, 2021 - ETH 10-day Realized and Trade Weighted Implied Vol - Deribit)

Notice the extreme premium ETH IV has compared to RV.

Again, this can be very juicy for volatility selling.