April 6, 2023
In a static Tuesday & Wednesday tape for BTC the crypto vol markets saw a stealthy spate of action in 2-3 day expiries, wingier strikes and longer dated tenors as ETH broke to fresh cycle highs before a flaccid if orderly retracement after mid-week.
In that context, December 50 deltas caught a quiet bid as New York walked in on Tuesday with ether and bitcoin IVs firming in sync just ahead of the 60% level. As they did so, basis out the curve marked up simultaneously suggesting both delta and vega covering. And although May / Dec bitcoin call calendar blocks were RFQ’d in succession Tuesday morning, granting some measure of offsetting supply, equilibrium was not found until the afternoon by which point delta neural straddle premiums settled nearly 50 basis points higher and spot-Dec basis closed in on $600.
In terms of wings, throughout Tuesday, ETH options markets saw persistent RFQs to sell Sep 50 deltas vs buying quarter delta calls, along with an incentivized appetite to bid size 5 delta same tenor calls just 5 bps off mids. BTC by comparison saw size May 1×2, 1×3, and 1×4 convexity spreads RFQ’d before 800 units of 30k-45k ratios went through 2 bps off mids.
Wednesday’s session saw a moderation of those flows for bitcoin with demand for vega easing and gamma sellers prevailing as a local gamma sink at 28,000 looked to take hold, while ETH dynamics were more aspirational with steady buyers of 1wk to 1month quarter delta upside risk in greater than 20,000 units as the market eyed chances for a breakout. But it was not to be: with all eyes on this week’s Good Friday NFP and a strong Caixin in China, the weight of successive releases of leading economic indicators in the current data dependent policy regime, particularly insofar as the Fed is concerned, appears to have tempered market enthusiasm, at least temporarily, to push towards the critical levels of 30,000 BTC and 2,000 ETH, until a more explosive catalyst for the next leg in the time series of returns for the asset class is found.
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