August 25, 2023
Spot crypto found a somewhat firmer footing by midweek after a relentlessly heavy tape saw ETH probe the $1600 level while bitcoin survived another flush lower that failed to break last Thursday's bottom ahead of $25,000.
Volatility similarly sensed a measure of fatigue as spot momentum faded with both failed attempts to bounce and to break lower. Despite good demand for ~1 month 25-delta BTC downside at the 42.5% IV point during Tuesday afternoon, bids quickly faded with screens offered two points lower by the start of the Asia Wednesday trading session.
The IV term structure vol dis-inverted in sympathy after BTC showed a resilience back above $26,000 and ether inched toward $1650; 2-day IVs wafted lower by 8-10 points leading up to the 25th August expiry for which roughly 20% of OI rolls off, with a raft of selling in lower delta risk and one-way appetite to roll gamma to the nearest quarterly expiry which pushed first and second week September ATM IVs down by 3 points in bitcoin and as much as 5 points in ETH.
However, vestiges of expectations for variance on a medium- to long-term horizon have lingered, with year-end tenors flat to higher from the week's starting lows. In addition, the less liquid year-out June was almost unchanged for bitcoin after a lump of ~$100,000 vega via 60 delta calls was paid nearly 2 points through apparent mids in a series of chunky anonymous prints on screens that left the street guessing as to both the motivated purchaser and the motive.
In that context, tactical plays to protect length or play for lower prices were a feature of the week, with 1000x September bitcoin wingy call spread collars (buyers of puts and sellers of call spreads) trading reasonably tight on Tuesday for the size and similarly motivated ratio risk reversals going through in same tenor ETH close to zero cost for roughly 10% OTM strikes followed by a flurry of 29th September 1,600 strike buys going through seemingly at or through mids as eager sellers dumped downside.
The Jackson hole symposium delivered less than stellar clarity as pundits debated the prospects of the ultimate end of the tightening cycle ahead of another chance for a court ruling on GBTC before a final week of summertime torpor - or potentially another torrent – looms with the expiration of a significant amount of local fixed strike gamma.
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