Crypto Options Insights - 1

Insights and thoughts on the crypto options market & volatility

2024-04-26By Ryan Duthe

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

  • 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.

  • There’s about 190K BTC Call options of OI, compared to 93K BTC put options OI

  • 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.

  • May and June put open interest represent about 25% of the remaining open interest in puts.

  • Takeaways

    • The above data and my own empirical observations from being in the crypto derivative markets since 2020 are:

      • Despite new all time highs this year, the vast majority of the option market is and has been focused on speculation to the upside.

      • There’s extremely little further dated hedging and relatively low speculation interest to the downside

      • 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

Vol Story

  • 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.

  • The front of the curve is now near 50% vol and the backs are 65%

  • Realized Vol for the past 90 days is 59%

  • 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)

  • Buy 125 December 2024 60K/45K put spread to sell 125 December 2024 100K call

    • Put spread costs $6,200 Per BTC

    • Call proceeds are $7,400 Per BTC

  • Take advantage of the call vol trading positive as well as the put vol trading flat to ATM given market positioning discussed above.

  • Collateralize with Spot BTC

    • 77.50 BTC ($5M notional at $64,500 reference BTC price)

    • Allows you to participate in upside given collateral appreciating in that scenario, but still have downside protection

    • Margin requirement is about $1M BTC (25% of notional size)

  • PNL Scenarios

BTC Price20k 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
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The foregoing contains the author’s observations and opinions and should not be construed as legal or investment advice. This material is not intended to be, nor does it constitute, a solicitation, recommendation, or offer to buy or sell any security, financial product, or other instrument. Options trading entails significant risk and is not appropriate for all investors, and over-the-counter options trading entails additional risks beyond those presented by exchange-traded options trading. This material is strictly for illustrative and educational purposes for entities who are eligible Contract Participants under the Commodity Exchange Act. You must make your own determination as to whether any particular trade fits your investment objectives and risk tolerance.