Options Market Weekly Report: Ethereum breaks through $2,100 again, volatility falls and remains unchanged

The increase in the spot price of Ethereum has a certain market confidence. As of the time of writing, the spot price of Ethereum is still stable in the range of US$2,100. At the same time, the rise in the price of Ethereum has driven the market of other digital assets. Digital assets such as HT and XRP have also achieved significant growth in the second week of April.

Summarizing the data from the options market last week, we found that:

The volume of Bitcoin options has increased significantly, and the premium of call options has formed again;

The combination of higher skewness and lower volatility indicates that the probability of large price changes in the future is not high;

Various advanced data show that options investors have stronger confidence in Ethereum;

The rise in Bitcoin and Ethereum prices has not changed the downward trend in volatility.

Bitcoin achieves breakthrough

Compared with last week, this week's Bitcoin options trading is slightly more active. When there is no obvious change in trading volume, we can observe the micro changes in the market through block trading. Many traders are capturing the premium between Bitcoin spot and delivery contracts. Such trading strategies have been very popular in recent months.

Bitcoin option premium volume (left) and Bitcoin option contract volume (right), as of 18:00 on April 11, data source: gvol.io

In the second week of April 2021, the spot price of Bitcoin once again exceeded $61,000. Option investors were no longer overly cautious, and a large number of call option purchases increased the entire implied volatility surface, while also bringing the premium of call options. From the observation of the implied volatility surface, the implied volatility surface of options of all maturities is more positive than last week.

Changes in the implied volatility surface of short-term Bitcoin options, as of 18:00 on April 11, data source: gvol.io

Judging from the medium- and long-term implied volatility surface, the market seems to have raised its expectations for currency prices. The forward implied volatility surface shows certain characteristics of a long right tail, but it is not obvious.

Changes in the implied volatility surface of forward Bitcoin options, as of 18:00 on April 11, data source: gvol.io

Although the Bitcoin spot market performed well last week, the implied volatility of various maturities still fell slightly. The term structure of option implied volatility is similar to last week, still showing a "Contango" pattern. The market amplitude has decreased and volatility has weakened. According to glassnode's Bitcoin chain data, the transaction volume above $52,000 has exceeded 10% of the circulating supply of Bitcoin, which seems to be good news for stabilizing prices.

Bitcoin options implied volatility term structure, as of 18:00 on April 11, data source: gvol.io

Looking at the advanced data of options, we still did not see an increase in implied volatility against the backdrop of rising spot prices for Bitcoin, and even saw a slight decline. However, the value of option skewness did show an upward trend, with the skewness value of call options returning to double digits. There is no need to worry too much about the decline in the price of the currency in the short term. In the past week, we have seen a market combination of falling volatility and rising skewness.

Changes in Bitcoin option implied volatility (left) and skewness (right) over the past month, as of 18:00 on April 11, data source: gvol.io

Judging from the historical percentile chart, the actual volatility of Bitcoin in short windows (1D, 7D, 14D) is close to the 25% range.

Comparison of historical volatility and actual volatility, as of 18:00 on April 11, data source: gvol.io

Observing the changes in volatility, although the price of Bitcoin has rebounded to a certain extent, the downward trend of implied volatility and realized volatility has not changed.

Comparison of historical volatility and implied volatility, as of 18:00 on April 5, data source: gvol.io

Ethereum price breaks through $2,100

Ethereum spot price rose from $1,800 to $2,100, a cumulative increase of more than 15%. Compared with the price, Ethereum option trading performance was very general and did not change significantly.

Ethereum options trading volume, as of 18:00 on April 11, data source: gvol.io

From the perspective of the implied volatility surface, the surface shape of Ethereum options is more optimistic than that of Bitcoin. It is worth noting that the short-term and medium-term Ethereum call options have already occupied a premium advantage. Such optimistic option positions are indeed a bullish signal.

Changes in the short-term implied volatility surface of Ethereum options, as of 18:00 on April 11, data source: gvol.io

After breaking through the new high, Ethereum's spot price stabilized in the $2,000 range, and the implied volatility surface of Ethereum forward options also showed a certain positive pattern.

Changes in the implied volatility surface of Ethereum options forwards, as of 18:00 on April 11, data source: gvol.io

Ethereum's implied volatility has dropped slightly compared to last week. The September volatility premium mentioned in the last weekly report has been traded away, the hump structure has disappeared, and Ethereum has shown a standard "Contango" futures-spot structure.

Ethereum options implied volatility term structure, as of 18:00 on April 11, data source: gvol.io

Similar to the implied volatility of Bitcoin's in-the-money options, the implied volatility of Ethereum's in-the-money options is also on a downward trend. However, the skewness indicator of options has changed significantly, and traders are very confident about the performance of Ethereum's spot price. In this way, we can draw the following conclusion: volatility has decreased, skewness has increased, and investors are more willing to hold positive positions, but the market still does not have full confidence in unexpected changes.

Ethereum options implied volatility (left) and skewness (right) over the past month, as of 18:00 on April 11, data source: gvol.io

Referring to the historical percentile chart of volatility, Ethereum's current actual volatility is near the historical median.

Comparison of historical volatility and actual volatility, as of 18:00 on April 11, data source: gvol.io

Considering that both implied and realized volatility for Ethereum are low, traders who are bullish on rising volatility can look to the opportunities presented.

Comparison of historical volatility and implied volatility, as of 18:00 on April 11, data source: gvol.io

in conclusion

Last week, both Ethereum and Bitcoin saw a significant price increase. We can clearly feel that the trading sentiment in the digital asset market has rebounded to a certain extent. In the absence of a market mainline, the strength and duration of this rebound remain to be verified. Investors are advised to set higher requirements for risk-return ratio.