OTC Desk Market Update — The Volatility Edge: Unveiling BTC and ETH Option Insights

5 min readDec 11, 2023

Welcome back! Here are the top things we’ll be paying attention to this week:

CORE CPI (MoM) on Tuesday
FOMC Meeting on Wednesday
Crypto Weekly Options Expiry on Friday
Equities Quarterly Options Expiry on Friday

Macro

In the latest economic snapshot of the US Economy, non-farm payrolls surged by 199,000, reflecting robust growth that many macro forecasters said would be impossible in an environment of high interest rates. Coupled with this positive momentum, the unemployment rate dropped by 0.2% to a low of 3.7%.

Notably, the prime age employment-population ratio climbed 80.7%, signaling increased participation in the workforce. Moreover, workers saw a boost in their earnings, with average hourly earnings rising by 0.4%. These figures underscore a thriving job market, heightened employment prospects, and improving wages, painting a promising landscape for the macroeconomic outlook.

All of the above was said to be an impossible outcome for the U.S. economy under the current rate regime. This year has been one of upside surprises that orthodox approaches to economics have failed to see coming.

It’s worth wondering what 2024 has in store and if we ever see the recession that so many people predicted would happen this year….

Crypto Market Overview

Implied and Realized Volatility

It would seem Sundays are for volatility in crypto. BTC’s realized volatility had already surged post the recent breakout to 40K, settling around 42–43K, while implied volatilities moved higher initially but eased as the market stabilized at 42k.
Traders had been anticipating a target of 42k in BTC was reached, which led to profit-taking and a reevaluation of selling weekly calls against core longs, with traders targeting 45k strikes as a good place to sell some gamma.
Sunday night implied vol spiked to the low 60’s on what is being reported as cascade of liquidations on ByBit leading to a sector wide sell off.
Despite ETH’s stagnant realized volatility amidst market moves, implied volatility has been rising relative to Bitcoin, indicating that market participants’ forward-looking expectations for two assets are changing.
Long-end bids on ETH reflect traders betting on a future narrative shift, possibly gaining attention later in the year as Ethereum’s story develops distinct from Bitcoin.

Term Structure and Skew

BTC and ETH Terms structure were briefly in backwardation post the recent volatility spike but have normalized and returned to contango.
Front end term structure in BTC is in the low 60’s while ETH has settled in the high 50’s. Though prices across the sector suffered double digit percent losses in some cases prices have already begun to recover, even with implied volatility remaining elevated.
Convergence in skew between BTC and ETH implies a consensus among traders on near-term price action around the 42k level, with front-end skew indicating profit-taking on short-dated calls.

Option Flows and Gamma Positioning

BTC options saw concentration in December at 40k strikes with profit-taking at 40k and 42k calls post the breakout, with buyers moving to higher strikes.
ETH options experienced less excitement, primarily witnessing buying of call spreads in January and significant rolling from March to June contracts, indicating a different sentiment compared to BTC options.
Current BTC dealer positions are short gamma above the 42K strikes, creating potential for dealers to chase price higher as we get closer to expiry, while ETH exhibits a more balanced gamma position, suggesting less impact on Ethereum’s movements.
Short gamma in BTC indicates potential market volatility, while ETH’s neutral gamma stance might not significantly influence Ethereum’s movements.

As always, our team is here to assist you and provide services tailored to your specific needs. If you would like to discuss these topics further, we invite you to book a meeting with our team. To schedule a meeting, please visit NDAX OTC | Bitcoin and Crypto OTC Trading Desk or contact your OTC representative directly. We look forward to assisting you on your investment journey.

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Disclaimer:

This newsletter is for informational purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy any securities or other financial instruments. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Past performance is not a guarantee nor a reliable indicator of future results. Please consult your financial advisor before making any investment decisions.