Options Weekly is a brief overview of the Crypto Options market. This is not financial advice.

Date: 29th April 2021

Bitcoin Options:

As BTC hovers around the $54,000 level, the Options market is pricing-in a 45% chance of Bitcoin moving to $58,000 and a 31% chance of it slipping to $50,000 by the end of May. Last week, the same percentage away-from-the-money strikes were implying a probability of 46% ($53K) and 31% ($45K) for the May expiry, with BTC spot close to $49,000.

All eyes are on the monthly expiry this Friday. We see highest OI in the 80,000 strike calls and 52,000 puts with the balance slightly tipped towards OTM calls as traders aggressively wrote the upside last week. Most of these calls are set to expire worthless.

In the last 7 days we have seen the short term implied volatility (IV) cool off slightly and it is trading at about 5-10% discount to the IVs for June and Sep volatility. Across the maturities we have seen skew, of calls over puts, recover back to positive territory after being heavily sold down as the market rushed for protection last week.

We are still seeing demand for protection between the 50,000 and 55,000 strikes. Though BTC price has recovered, the sentiment is still dull and is unlike what we have seen in recent up-moves in Bitcoin. Most traders are seeing this move up as a bull trap and not opening any fresh longs here.

The realized volatility has spiked in the last week and expect it to stay high for some time. There is high gamma exposure at the 56,000 and 60,000 strikes on the upside. Considering overall options exposure in the market, 56,000 will be a key level to watch around the expiry.

Bitcoin Options

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Ethereum Options:

The Options market is pricing ETH at $3000 with 38% probability and at $2200 with 23% probability by the end of May. Last week traders were quoting 41% for $2600 and 25% for $1900 for the same expiry. Skew of calls over puts is positive as there is more demand for calls with ETH posting new ATHs.

For ETH the gamma exposure is highest at $2600 and $2900 strikes on the upside and one can expect sharp moves as ETH price pushes past these levels.

Trade Ethereum Options on Delta.

Date: 15th April 2021

What is Gamma Exposure?

Gamma describes the change in an option’s delta with respect to the asset’s price movements.
While its overall market impact might be negligible at many times, it is worthwhile to briefly investigate the concept of gamma exposure in this context. Gamma exposure describes the overall market positioning at a certain level with respect to the rate of change of delta. If delta can be thought of as the probability of the underlying asset reaching a price level by expiration, gamma is the rate of change of probability.

When buying a call option I am long gamma, I want to profit from an increase in price and volatility. This exposure comes at the price of the premium I pay for the option, which is subject to theta. Ideally I want to get good gamma for the the time loss I am facing. On the other side of the trade, a market maker is collecting my premium while exposing himself to potentially unlimited losses (asymmetry of buying and selling options) if the asset price moves in my favor in time. To hedge his short gamma exposure he can buy spot and/or Futures.

In case of a rapid move in the call buyer’s favor, the market maker might be forced to buy more spot/futures to hedge, thereby exacerbating the move. If a market maker, no matter the direction, has to (re)hedge every tiny move in the asset this can either lead to accelerated up- or downside price changes or to an effect of ‘pinning’ spot to a certain level.

Bitcoin Options:

With BTC around the $64K level, the options market is pricing in a 44% chance of $70K and 31% of $58K by the end of May. Last week, the same percentage away-from-the-money strikes were implying a probability of 37% ($62K) and 28% ($52K) by end of April with BTC spot at ~$57K.

Since breaking $60K, realized volatility has increased but remains clearly below implied volatility.

After the latest spike, short term implied volatility (April, May) trades at only 5% discount to June and September expiries. Skew of Calls over Puts has reached levels unseen over the last month. $50K puts are sold in size while high OI build-up continues at the very same strike and around $60K and $64K for calls. On extremes, open interest remains high in $40K Puts and $80K Calls. With high call gamma exposure at the $64K strike this remains a key level; as soon as spot trades higher we could see accelerated moves to the upside.

After breaking $60K the overall outlook is optimistic with expectations of higher volatility in the short term.

Bitcoin Options

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Ethereum Options:

The option market is pricing ETH at $2.2K or $1.8K with equal probabilities of 34% by end of April. Most traded contracts today are at the $2.5K and $2K levels with more call buying activity. Traders are showing a preference for short term expiries versus longer term. Realized volatility is just below implied, skew has followed spot ATH.

As far as price ranges are concerned we see open interest at $1.6K; followed by $1.9K and $2.2K and about the same OI in OTM strikes at $3K and $5K. The term structure remains similar to BTC with traders paying less for April volatility than expiries a few months out.

Trade Ethereum Options on Delta.

Date: 9th April 2021

What are Greeks?

The price of an option depends on multiple factors commonly described as the Greeks.

Delta
Delta is the sensitivity of an option’s price with respect to movements in the underlying. For example, the value of a 0.5 delta option increases by 50c for every $ increase in the underlying’s price.

Gamma
While Delta expresses the rate of change in option value with regard to the change in the underlying’s price, Gamma describes the change in Delta itself with respect to the asset’s price movements.

Vega
Vega expresses an option’s sensitivity to implied volatility. Example: BTC currently trades at about the same spot price level as a month ago but implied volatility was much higher than it is now. All other things being equal an option is cheaper now, as the market (looking backwards) is pricing in less volatility based purely on the price action of the last few weeks.

Theta
Theta is the loss in time value of an option. All else being equal, an option is worth less close to expiry than, say, a month to expiry.

Bitcoin Options:

With BTC around the $57K level, options market is pricing in a 37% chance of $62K and 28% of $52K by the end of April. Last week, roughly the same percentage away-from-the-money strikes were implying a probability of 43% ($64K) and 31% ($54K) with BTC spot at ~$59K.

The realized volatility, which is now about half of implied volatility, has dropped to a low last seen only a few months ago.

The short term implied volatility (April) is under a lot more pressure than the longer term implied volatility (May & June). Skew of Calls over Puts has also compressed, painting a less decisive picture overall. We’ve also seen some demand in Puts and Put spreads around the $50K strike in order to protect from any adverse moves on the downside. We continue to see high OI build-up around $50K in Puts and between $56K and $64K Calls. On extremes, open interest remains high in $40K Puts and $80K Calls.

The overall outlook remains optimistic albeit more cautious on the downside, than the last week.

Trade Bitcoin Options on Delta.

Ethereum Options:

The option market is pricing ETH at $2.2K or $1.8K with equal probabilities of 34% by end of April. Most traded contracts today are at the $2.5K and $2K levels with more call buying activity. Traders are showing a preference for short term expiries versus longer term. Realized volatility is just below implied, skew has followed spot ATH.

As far as price ranges are concerned we see open interest at $1.6K; followed by $1.9K and $2.2K and about the same OI in OTM strikes at $3K and $5K. The term structure remains similar to BTC with traders paying less for April volatility than expiries a few months out.

Ethereum Options

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Date: 1st April 2021

Skew:

From now on we’ll be introducing further option trading concepts to develop a deeper understanding of this market and its dynamics.

Let’s say BTC trades at $50k; then skew is the difference in implied volatility of, say, a $52k call and a $48k put. In the case of positive skew, traders are willing to pay more for an OTM call to gain upside exposure than for the equivalent put to protect themselves from falling prices. As such it can give us an insight into market participants expectations of spot price movements.

Bitcoin Options:

With BTC at the $59k level option markets give a 43% to $64k and 31% to $54k by the end of April. Except for a short spike during the recent price action realized volatility remains lower than implied . Looking at different timeframes, traders are currently paying less for April options than for those expiring in May or June. Skew is approaching levels seen last time in mid march when spot broke $60k, indicating an overall optimistic positioning of market players.

Most contracts traded today are precisely at the $54k-$59k levels with additional demand for $48k, $64k and $70k. To get an idea of price ranges, on the downside open interest is high for $40k, $48k and $50k strikes while on the upside, leaving the prominent $80k strike aside $56k-$64k levels are of immediate interest As opposed to last week the outlook is more optimistic across expiries which is further corroborated by positive skew and increased put selling by traders expecting for this downside insurance to expire worth less.

Trade Bitcoin Options on Delta.

Ethereum Options:

The option market is pricing the probability of ETH at $2.2k with 32%, at $1.4k with 14% by end of April. Most traded contracts today are at the $3.2k level expiring end of June, followed by strong demand for April options around the 1.8k level. Selling calls is the name of game, outweighing every other options trading activity today. Nonetheless implied volatility is currently lower than realized. Comparing equivalent calls and put, skew is even more pronounced than in BTC.

Call selling at these levels might indicate optimists are getting ahead of what upside ETH can deliver in the short term; otherwise it could just be part of gaining capped upside exposure in complementing call purchases. As far as price ranges are concerned open interest is highest at $1.6k; followed by $1.9k and $2.2k with high OI in far OTM strikes at $3k and $5k. Short term priced in volatility is less than levels a few months out.

Trade Ethereum Options on Delta.

Options Weekly - Trading Bitcoin and Ethereum Options - April 2021