February 2, 2023

Desk Commentary - Gameday

Pre- and post-FOMC jostling was the feature of both January’s month-end and the 1st Feb session for BTC options, with ETH once again playing something of a second fiddle.

The offered tone for gamma which had prevailed as BTC clung to the north of side of $23,000 turned increasingly bid in a sloppy Tuesday afternoon strewn with multiple whipsaws on either side of material OI around the 23k strike. As so often happens, ‘gameday’ implied volatilities (‘IV’s) quickly rolled upward over the following 24 hours, effectively negating more than the entire day’s theta, with Friday 3rd Feb expiry IVs ratcheting from below 60% to over 70% for at the money strikes in BTC.

But it wasn’t only gamma which hooked higher as the rally in the short-end of the term structure dragged the entire curve upwards, pushing the depressed 24th Feb date back above 60% and giving even the lackluster 31st March date a boost off lows not seen since 13th January, with BTC 50-delta options wafting from sub 53% to above 55%.

Most of Wednesday’s action similarly centered on strikes nearer to the money, with limited interest in February crash protection and light if persistent demand to cover wingy March calls which have languished just above the 60% IV level. Surprisingly, the implacable bid for 10 delta February topside real estate seen mid-month was no longer in evidence even as bitcoin spot has found a reasonable measure of resilience with limited pullbacks and, after 2PM ET, made a fresh run toward cycle highs of 24,000.

While straddle premiums deflated sharply from nearly 4.5% for the Friday 3rd Feb 23k structure to just under 3% immediately after the FOMC rate decision, the crypto options market demonstrated that complacency carries its own hazards. With IVs sagging below 60% at 2:15PM as BTC spot probed below 23k once more, reflex-driven gamma sellers were not given instant gratification, as spot surged 4% in the hour following Jay Powell’s press conference. The sudden shift, which has begun to occur with increasing regularity in these past weeks, put a bid under both front-month and March dates, as those same 50-delta strike vols nudged towards 56% for the major quarterly expiry. Syncopated flows in longer tenors from April to September meant a less coherent immediate shift in sympathy, though a bevy of pre-FOMC forays into meatier April 40 delta strikes may yet find further value-oriented buyers with the curve now Nebraska-flat for virtually all of 2023.

The simultaneous bounce in ETH beyond 1650 added to the ebullient mood to close the Wednesday session, with eyes towards key resistance levels just above at 1700. However, if January’s trading rhythms were to persist, there may yet be additional demand for bullish optionality. Overall, given the raft of potential data-driven catalysts ahead including this Friday’s Non-Farm Payrolls and the mid-month PPI / CPI releases as well as an inchoate recoupling between the crypto complex and macro assets, February looks to potentially expand upon recent trends whereby quantities traded, particularly for negotiated option blocks, have the ability to expand geometrically as coin prices rise. Dealer desk volumes appear, as a representative heuristic, to have surged as much as eightfold in the back half of January compared with the first two weeks of the month, in a salubrious sign of renewed reflexivity for crypto options market participation.

Written By

Gordan Grant

Managing Director, Trading and Sales


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