SwapGlobal is excited to announce the launch of its crypto options insights series, bringing you unique thoughts on the crypto options & volatility markets from our research team.
Ryan Duthe is a veteran options markets and crypto professional, with experience at DRW, Talos, and trading crypto options at CMS Holdings.
PLEASE NOTE: this was written on Thursday, April 25th 2024 and distributed Monday, April 29th 2024. Although the market has moved and the data is a few days old, this is still relevant context for interested market participants.
Data and charts are sourced thanks to Amberdata and Deribit's position tools.
General Market Dynamics - BTC
Open Interest Story
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On the heels of a 50+% year to date rally in BTC, unsurprisingly the option market open interest (OI) is focused on the upside of the market.
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There’s about 190K BTC Call options of OI, compared to 93K BTC put options OI
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Roughly ⅓ of all options Open Interest will roll off tomorrow morning when April expires (100K contracts out of 280K), and 42% of all put open interest will expire.
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May and June put open interest represent about 25% of the remaining open interest in puts.
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Takeaways
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The above data and my own empirical observations from being in the crypto derivative markets since 2020 are:
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Despite new all time highs this year, the vast majority of the option market is and has been focused on speculation to the upside.
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There’s extremely little further dated hedging and relatively low speculation interest to the downside
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The Little downside (put) interest that does exist is focused on the front of the curve, and usually initiated as a knee jerk reaction to sharp pull backs
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Vol Story
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Implied volatility has come in sharply since we hit all time highs in Mid March, when we saw 90+% vol in the front of the curve and 75% vol in the further dated contracts.
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The front of the curve is now near 50% vol and the backs are 65%
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Realized Vol for the past 90 days is 59%
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Takeaways
- The front of the vol curve has come in considerably and is now below realized vol for the 90D window. Back of the curve vol has come in a decent amount too, but still trades about 6% above realized vol.
Trade Idea Sized per $5M BTC exposure (BTC reference price $64,500)
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Buy 125 December 2024 60K/45K put spread to sell 125 December 2024 100K call
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Put spread costs $6,200 Per BTC
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Call proceeds are $7,400 Per BTC
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Take advantage of the call vol trading positive as well as the put vol trading flat to ATM given market positioning discussed above.
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Collateralize with Spot BTC
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77.50 BTC ($5M notional at $64,500 reference BTC price)
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Allows you to participate in upside given collateral appreciating in that scenario, but still have downside protection
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Margin requirement is about $1M BTC (25% of notional size)
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PNL Scenarios
BTC Price | 20k | 30k | 40k | 50k | 60k | 70k | 80k | 90k | 100k | 120k | 150k |
PNL ($M) | -1.35 | -0.6 | 0.2 | 0.325 | -0.2 | 0.6 | 1.4 | 2.2 | 3 | 1.9 | 0.335 |