Date: 7th May 2021
As BTC rallied from $54K to $59K twice, skew of call over puts didn’t expand for too long. Traders remained skeptical and each runup was promptly followed by a selloff. With spot back around $56K the options market is pricing in a 40% chance of $60K and 30% of $52K by the end of May. Last week’s estimates for the same maturity were a 45% chance of $58K and 31% of $51K with spot at $54K.
Across May expiries we see highest OI in $50K puts the increasing demand in the $45K strike. On the upside OTM calls at $60K and $70K have been written as another strong rally is seen as less likely in the short term.
With market players expecting further turbulence, implied volatility is now higher than realized. Short term May volatility trades at a 5% discount to June and September expiries. Skew of calls over puts has recovered positive territory after contracting during the spot selloff below $53K.
For both calls and puts gamma exposure is highest at the $56K strike. Last week saw a larger player
buying up $52K and $50K puts while selling calls at the same strikes. In the same vein traders have been
selling the upside and buying up protection, anticipating further downside from here.
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Despite a selloff, skew has remained positive throughout. May volatility is now trading at a 5-10% discount to June and September expiries. Implied volatility has markedly increased and now trades above 100% compared to realized volatility of less than 50%.
Demand in far OTM calls has not abated while put OI is high in $3K and $2.6K strikes. We see highest gamma exposure at $3.4K for both Calls and Puts. With lower call skew and strong demand for puts market players are cautious in the short term. Continued activity in far OTM calls indicates an optimistic outlook in the long term.
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