Crypto Options Analytics, Oct. 9th, 2022

@g_vol

Oct 10, 2022

Visit gvol.io

Disclaimer: Nothing here is trading advice or solicitation. This is for educational purposes only.

Math minded people here, pardon any typos.

Upcoming Weekly EVENTS:

Wednesday, 2pm ET: FOMC Minutes Release
Thursday, 8:30am ET: CPI Release

THE BIG PICTURE THEMES:

On Friday we had the “Employment situation” release.

Payrolls came in at +263k for September (below the +372k monthly average for 2022) above the +50k needed estimate for holding a steady unemployment rate.

The unemployment rate dropped from 3.7% → 3.5%. This was in part due to a .1% drop in the participation rate.

All-in-all, this keeps the Fed on track for a +0.75% hike on November 2nd, and another 0.5% to 0.75% hike by EOY.

“There is a record of failed attempts to get inflation under control, which only raises the ultimate costs to society of getting it under control” - Jerome Powell

Despite global pressure (in part due to a massive USD rally) Jerome Powell and other Fed board members are very concerned about entrenched inflation expectations, therefore modest drops in wage growth or a decline in job openings aren’t going to sway policy decision yet.

BTC: $19,402 +0.7%

ETH :$1,316 +0.9%

SOL: $32.78 +0.2%

DVOL: Deribit’s volatility index

BTC - (365-days w/ spot line chart)

We now have TWO weeks with unchanged spot prices, week-over-week.

This is nearly unheard of in crypto and it’s a realized volatility “meltdown”.

This has caused DVOL to reach annual lows of about 65%. All this WHILE the S&P500 VIX is around 30%.

This is a fascinating divergence between risk-assets.

TERM STRUCTURE

(Oct. 9th, 2022 - BTC Term Structure - Deribit)

(7-day highlight)

We can see that the term structure hit a very steep Contango on October 8th, as 7-day IV hit a monthly low of about 50%.

BTC is stuck in a sideways channel, holding below the $20k level, while the USD rallies and risk-assets have a sharp drop lower.

BTC (Term Structure - API chart)

ETH (Term Structure - API chart)

As spot prices signal a lack of buying enthusiasm - but implied vol. likely heads lower - a DEC 19P-17P-12P broken fly structure could pay off nicely in a controlled “grind” lower.

SKEWS

(Oct. 9th, 2022 - BTC RR SKEW (C-P) ∆25 - Deribit)

(7-day highlight)

BTC RR-Skew has actually found a steady level.

During the past 12-months, options skew was one of the quickest vol. properties to “reprice” sentiment.

(ex. Skew could shift, while ATM vol. held constant)

We’re now seeing BTC skew hold steady around the -5% pts level week-over-week, despite whatever is happening in the broader macro spectrum.

Although it seems like BTC is showing relative strength versus other risk-assets, one could also argue that BTC (and crypto in general) was the first asset class to move lower back in May/June.

Therefore, this relative strength might merely be a “pause” while everything else catches up.

I have a hard time seeing broader macro assets finding a true bottom here: there’s too much going on in the world.

Therefore, I do think crypto assets have a lot more downside in the “medium term”… say, -40% in the next 6-12months.

PROPRIETARY “GVOL-DIRECTION” FLOWS - @fb_gravitysucks

First week of the month below expectations without the much-talked-about flow from the last quarter of the year.

The bloodbath of volatility was a consequent reaction. Sales were accentuated after the “non-event" of the publication of the NFP (non-farm payroll) on Friday.

Bitcoin trades: Straddle sold 28OCT $19k, fly bought 30DEC $25k/$30k/$35k, calls bought 28OCT $22k/$24k, call spread bought 30DEC $25k/$30k, calls sold 30DEC $24k (on screen)

Ethereum trades: puts sold 14OCT $1k, call spread bought 28OCT $1.5k/$1.8k, calls sold 14OCT $1.5k, call spread sold 25NOV $1.7k/$2.1k, calls sold 25NOV $1.45k

Although the iv is at the lowest level of 2022, the 7-day VRP is still 15pp, and with gamma buyers exhausted, sales could continue in the week ahead if the price action remains in the recent range.

(BTC 7D IV-RV spread, 2022)

Paradigm Block Insights (3rd Oct – 8th Oct.)

Crypto majors started out the week strong, but momentum faded on Thurs/Fri to finish roughly flat, in line with NDX.

Paradigm flows mirrored spot action: fairly bullish on the rally, but more bearish into the weekend.

BTC +1.5% / ETH +2.9% / SOL +2.1% / NDX 0.1%

BTC 🌊

BTC 1M ATM implieds crashed from 64v to 57v with 7D realized now sub 40v - the lowest levels this year. While optionality was not exactly cheap given brutal RV, we saw large buyers of BTC Oct calls on Paradigm.

930x 28Oct 24000 Call bot

620x 28Oct 22000 Call bot

Call fly buying continues with 1k Dec 30k / 35k /40k bot for ~65bps.

🌊

On the contrary, top ETH flows were large Oct call sellers. ETH 7D realized almost as poor as BTC at 43v, with 14Oct implieds now trading at 66v. Holding gamma has been quite painful.

16k 14-Oct-22 1500 Call sold

7.8k 21-Oct-22 1450 Call sold

5.5k 14-Oct-22 1350 Call sold

Realized vol this low is shocking, given the poor macro backdrop. We’ve also seen little demand for downside, with a bias for put selling on spot lows rather than buying.

BTC 1M 25d skew trading towards lows since June.

Jun23 and Sep23 buckets also resetting lower, given the poor realized. We saw buying of ETH Jun calls on Friday to take advantage of the low absolute levels (Jun23 ATM ~82v).

2.5k Call 30 Jun 23 2400

2.5k Call 30 Jun 23 2500

2.5k Call 30 Jun 23 2600

2.5k Call 30 Jun 23 3000

🚀 FTX spread trading skyrockets on Paradigm, with over 21,000 FTX trades executed on Paradigm last week!

Top 5 structures:

BTC Spot / Perp: $142M

ETH Spot / Perp: $140M

BTC Perp / Mar23: $27M

ETH Perp / Dec22: $25M

ETH Spot / Dec22: $21M

🎀

Another 🔥🔥🔥 @ribbonfinance auction this week on @tradeparadigm.

🥳

All prices beat screen ✅ with WBTC and WETH beating by an average of 13% 🔥

Winners:

🥇@QCPCapital

🥇 @GenesisTrading

🥇@AlamedaResearch

🥇 @blockchain

🎉NEW🎉

🥇 Various ANON 🤫

Are you listening to our podcast?!

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BTC

ETH

SOL

VOLATILITY PREMIUM

(Oct. 9th, 2022 - BTC IV-RV)

Realized volatility has given-up all its mid-September luster. We could actually see RV remain tame while spot prices hold this “channel”.

This gives traders a good opportunity to sell the VRP with a clearly defined criteria around the spot price channel.

The New Opyn. Today, we're introducing the new Opyn… | by ...

Another quiet week in terms of ETH spot movement. With the FOMC minutes and CPI on the schedule, this could be one of the last quiet weeks we see for a while. ETH ended the week +.99% and oSQTH ended the week +2.25%.

Volatility

Volatility remained relatively flat this week with October 5th presenting an opportunity to be a seller going into the end of the week. oSQTH continues to be a cheaper option for traders looking for ETH exposure relative to DVOL.

Volume

The 7-day total volume for oSQTH via Uniswap oSQTH/ETH pool was $8.31m. October 4th saw the most volume, with a daily total of $2.32m traded.

Crab Strategy

Crab finished the week +2.04% in USD terms.

Crab performed 3 hedges this week, equating to 405.63 ETH.

Join us in Discord for all things Opyn: https://discord.gg/opyn

Lyra Finance Price in USD: LYRA Live Price Chart & News | CoinGecko

Lyra Weekly Review

ETH 7-Day Stats:

Volatility

ETH Implied Volatility has continued lower this week on a sideways market. Current ATM IV is sitting at ~60%, with the near-term calls being some of the lowest on the board. Longer-dated options are trading at a premium to CEXs with IV ~ 83%

Trading

30-day trading fees for the ETH MMV are ~136K!
Short option vaults have begun executing on Lyra with ~68% of all order flow being option sellers.

Trading rebates for stkLYRA holders have been simplified into fee tiers.

You can now use the discord channel #arbs for real-time arbitrage opportunities between Lyra and Deribit! Just message “/arbs” in the channel to refresh.
Traders now receive interest rewards on short collateral

ETH Market-Making Vault

The ETH MMV has returned 3.72% since its inception (June 28th, 2022) representing a weekly change of -0.20%. ETH vault has had a difficult week being long gamma while the market chops sideways. It is expected that long gamma and short theta positions decay over time and capture profits on large market moves.