November 3, 2022
Vol sellers were given a modicum of fright coming into the 31st October monthly expiry, though that brief blip faded into further apathy as crypto majors prepared for the all-important 2Nov FOMC.
Weekend fireworks that saw bitcoin retest the 21000 level were promptly extinguished as delta supply from a surfeit of upside gamma (amongst other putative factors) convincingly capped prices. ETH by contrast, rallied materially further; after probing sub-1500 when tech earnings, at least in part, tanked markets to close out the week, spot roared back as directional players and underhedged gamma shorts scrambled to strap on length into the push towards 1700, before gravitating towards a healthy 1600 pin.
In deference to the significant event risk over the coming days (today’s FOMC, NFP, Congressional Elections, and CPI), front-end vols had bumped towards cycle highs before 2pm ET with Friday BTC and ETH atm strikes bid at 64% and 90%, respectively. The BTC term structure had inverted accordingly, with 11 Nov 6 vols under 4 Nov; for ETH, where gamma hds begun to once again perform somewhat respectably, the inversion was more pronounced at ~8v. It was barely weeks ago that these atm figures were 25-30 points lower with steep, positive term structure, which represented quite a change and which, all else equal, could serve as a prospective guide for how volatility surfaces may align in the coming days. Given the primacy of the FOMC rate decision for markets, the relatively good offered-side liquidity in front end options pre decision (and the onslaught of supply ex post) is a reminder that, on balance, lingering fears of yet another vol implosion have yet to be put to rest by any sort of true blow out move in spot and that, absence fresh catalysts, flat or indeed inverted term structure may not persist.
Perhaps equally significant, the persistence of positive spot:vol correlation (insofar as gamma is concerned) has been priced into the ether options market with 25 delta skew bid to the call through 18 November in ETH. BTC skews remain flattish though slightly tilted to the put, quite naturally, owing to continued (if less enthusiastic) supply of calls from overwriters at present levels of spot.
Longer dated skews in both names remain bid for puts, while flies have continued to nudge higher as the market acknowledges that severe movements away from present levels of spot may be associated with higher degrees of both realized and implied vol, particularly to the right hand tail of the distribution of prices where in both BTC and especially ETH, chunky OIs lurk for both the November (>300k units 1600-2000 strikes) and December (>250k units 1600-2000 strikes).
With IVs deflating rapidly post FOMC and thus remaining closer to the lower-middle of their longer-term ranges, warehousing vol is not so immediately obvious a choice as it was at the lows of early Q4; yet there remains a dearth of supply in vega buckets and an appetite amongst relative value players to scoop longer-dated optionality and convexity.
Genesis Global Trading, Inc. and its global affiliates (collectively, “Genesis”) do not provide legal, compliance, tax or accounting advice. Genesis is a principal trading firm; it is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing this material, which cannot be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The information contained herein has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances, or requirements of any person, and it should not be the basis for making any investment or transaction decision. THE INFORMATION IS NEITHER A RECOMMENDATION TO ENGAGE IN ANY TRANSACTION NOR RESEARCH MATERIAL.
This material contained herein is confidential and may not be distributed in whole or in part to anyone other than the intended recipients. Unauthorized reproduction or distribution of all or any of this material or the information contained herein is strictly prohibited. These materials are incomplete without reference to, and should be viewed solely in conjunction with, the terms and disclosures set forth on the Genesis website, which are deemed incorporated herein.
The information provided in this communication does not constitute investment advice, financial advice, trading advice, or other advice. If any person elects to enter into transactions with Genesis, whether as a result of this material or otherwise, Genesis will enter into such transactions as principal only and will act solely in its own best interests, which may be adverse to your interests. Therefore, you are advised to make your own assessment of whether a Genesis service that you are considering is suitable for you and ensure that you have the necessary experience and knowledge to understand the risks involved in relation to those particular services, transactions or investments. Prior to entering into any transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences. In this regard, by accepting this material, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice and our disclaimer as to these matters. By accepting receipt of this material, the recipient will be deemed to represent that they possess, either individually or through their advisers, sufficient investment expertise to understand the risks involved in any transactions or services discussed herein and that they have not relied in whole or in part on any of the information provided by Genesis in making such determination.
The trading of digital currency as herein described is an inherently risky activity. Digital currency does not benefit from the protections afforded by the Securities Investor Protection Corporation. A counterparty’s ability to enter into derivatives with Genesis depends on satisfying a number of regulatory requirements imposed on derivatives under the Dodd–Frank Wall Street Reform and Consumer Protection Act and applicable law.
Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as an offer to sell or a solicitation to purchase any financial instrument. Nothing contained herein shall constitute any representation or warranty as to future performance of any financial instrument, credit, currency rate or other market or economic measure. In preparing this material, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise reviewed by us. Genesis does not make any representations or warranties, express or implied, as to the accuracy or completeness of the information provided herein. Any estimates included herein constitute our judgment as of the date hereof, are subject to change, may or may not be realized, and are not a complete analysis of every material fact. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, Genesis may have a position in any such instrument at any time.
Genesis and Genesis Trading are marketing names for certain businesses of Genesis Global Trading, Inc. and its global affiliates and if and as used herein may include as applicable employees or officers of any or all of such entities irrespective of the marketing name used. Products and services may not be available to all counterparties or in all jurisdictions. Securities and digital assets are not deposits or other obligations of any commercial bank, are not guaranteed by any commercial bank and are not insured by the Federal Deposit Insurance Corporation. GGC International Limited is incorporated in the British Virgin Islands (“BVI”). Genesis Global Trading, Inc, a Delaware corporation, has been granted a Virtual Currency License by the New York State Department of Financial Services and is registered with the U.S. Securities and Exchange Commission as a broker dealer. Genesis Asia Pacific Pte. Ltd. Is a private limited company organized under the laws of Singapore. Genesis Global Capital, LLC is a limited liability company organized under the laws of Delaware. Genesis Custody Limited is registered as a cryptoasset business with the UK Financial Conduct Authority.
Sign up for crypto market analysis from the Genesis team.