Monday Alpha

7 min readMay 22, 2023

GM, Premians!

We have a new addition to the monthly Market Data newsletter by Marty— shorter bi-weekly breakdown of the current market state! It’s a quicker read that provide some new insights never seen before on the monthly newsletter. As always, our goal is to load you up with market alpha to bring your DeFi options trading game to the next level!

Of course, please feel free to send requests or suggestions of things you would like to see here as the reader.

Please note, Premia does not provide any investment advice and nothing herein should be construed as such. Anyone considering trading or holding derivatives or crypto assets should be aware that the risk of loss can be very high, and it is upon each individual to seek advice from an appropriate professional advisor.

TLDR — Vol In The Gutter

BTC ATM IV

1W: 39.05%

1M: 42.58%

3M: 44.53%

6M: 46.48%

Index Price: $27185

ETH ATM IV

1W: 38.2%

1M: 41.87%

3M: 45.69%

6M: 48.44%

Index Price: $1815

What To Pay Attention To This Week

Events of May 22nd — May 26th, 2023:

Tuesday 9:45am EST — US PMI Data
Wednesday 2pm EST — FOMC Minutes
Thursday 8:30am EST — US GDP Data
Friday 8:30am EST — US PCE Data

Below we have the current visual price update for the various assets.

Ok, lets get into it:

We have recently added Greekslive Block Trade Data to the newsletters to shine light on the institutional side of OTC Options trading. These large orders or “Block trades” provide an interesting insight into the trades of the largest players in the crypto volatility and options space. This data is rarely shared publicly, but we got you covered.

Whether you’re interested in participating actively or would prefer to simply observe, you’re more than welcome to join Greekslive Block Trade Marketplace Group on their Telegram and Twitter. By joining, you can gauge the trading efficiency and capability of the Greekslive Block Market Place firsthand. It’s also an excellent opportunity to gain insights into various trading strategies.

Block Trade rolling 30-day volume: 310mm

Explanation

A Short Calendar Spread worth $21 million notional was executed on Greekslive given the low volatility levels. In this short ETH calendar spread, June and September 2200 call options example, the trader buys the June option and sells the September 2200 call . This could simply the trader could is betting that ETH stays under 2200 by September, but also wants to have some protection in case it ETH price significantly increases by June.

Max Profit and Loss

For a short calendar spread using calls, the maximum profit is realized when the underlying price significantly deviates from the strike price, either upwards or downwards, by the time the long call expires. This maximum profit equates to the net credit initially received, minus any transaction fees, because the price difference between the two calls becomes minimal or close to 0. Therefore, in scenarios of substantial price increase or decrease, the total credit from the spread essentially translates into profit.

On the other hand, the potential risk is significant in a short calendar spread. The maximum risk occurs if the long call expires worthless while the short call remains open, and the price of the underlying asset moves to the strike price or beyond. This situation can result in unlimited losses since the trader is obligated to fulfill the contract’s terms, which may involve selling the underlying asset at a loss. Most players would close or roll the trade at when the long call expires.

Now back to our scheduled services

Eth and BTC IV vs RV For Month Of May

Volatility vs Historical Volatility for BTC

Volatility vs Historical Volatility for ETH

Currently, both BTC and ETH have been experiencing exceptionally low levels of volatility. This has prompted traders to question whether it is an ideal time to purchase volatility, or if it’s possible for it to further decrease in cost. This predicament is not exclusive to one type of trader — it is shared by everyone from individual traders to large-scale firms.

One particular strategy that has caught the eyes of many is the 12000x Calendar Spread mentioned above. This strategy is finding favor among different traders across various platforms, especially larger players who are betting on a spike in vol or price in the near term.

We’ve been in a period of low implied volatility ever since the fall of FTX and the subsequent increase in volatility last November. Even thought these traders have put on this calendar spread, it appears to lack any immediate catalysts to stimulate volatility again. Though this doesn’t mean that its a bad trade, all in all, its just another trade of many and I’m sure they have various positions and have their greeks balanced. During such periods of low vol, a few key factors typically trigger a spike of volatility, which may include the emergence of a significant buyer, the occurrence of a Black Swan event (though this is undesirable), or simply the passage of time.

Though these traders are putting on these large trades, when looking ahead, a few events stand out as potential organic volatility stimulants:

The Bitcoin Halving set to take place in the first half of the year, and the 2024 US Presidential Elections towards the year-end, could both serve to increase volatility.
Additionally, the upcoming Bitcoin supply crisis and the Elections, coupled with the natural progression of time, seem to be converging into a perfect storm that could potentially rekindle volatility.

Why would these events cause volatility?

The Bitcoin halving, occurring every four years, halves miners’ rewards and limits new Bitcoins circulation.

This event, creating a supply shock, can theoretically increase Bitcoin’s price if demand remains high (which is what historically has happened). There are a few possibilities to consider why the halving brings volatility. Miners might sell more Bitcoin to cover unchanged operational costs, adding to market sell side pressure. Market participants’ various reactions to the anticipation of halving can fuel volatility, especially with heightened emotional trading around the event.

The 2024 U.S. Presidential Election can serve as a catalyst for organic volatility in the cryptocurrency market, stemming from numerous variables.

Factors such as the candidates’ public statements in debates or the potential regulatory proposals targeting the crypto sector can significantly influence market behavior to either the buy or sell side. Primarily, the anticipation or apprehension surrounding potential policy shifts often triggers violent market volatility. This is due to market participants reacting en masse, either buying or selling, as they speculate on the possible impact these changes could have on the crypto landscape.

Personal Note From Marty

While we consider these potential catalysts(if and when), we must remember that the cryptocurrency market has always been one of unpredictability. The high volatility of the crypto space has been one of its defining characteristics, bringing both risk and reward. That being said, understanding the context of current low volatility and being able to anticipate possible changes can provide traders with a significant advantage.

As traders, it is also important to note that opportunities aren’t exclusively present in times of high volatility. A low-volatility environment can provide its own set of opportunities for those savvy enough to capitalize on them. Traders might find benefits in strategies that work well in stable market conditions, such as arbitrage trading or yield farming. It is during these times that the importance of having a diversified portfolio becomes even more apparent, to not only spread risk but also to leverage and play different market conditions.

To conclude, despite the present period of low volatility, the cryptocurrency market remains dynamic and full of potential. As we anticipate and prepare for the events that could swing volatility in either direction, it’s crucial to keep a long-term perspective. No matter the market condition, whether it’s a bear or a bull run, opportunities exist for those ready to seize them. It’s all about staying informed, making calculated decisions, and being prepared to adapt to the ever-evolving landscape of the crypto world.

For our loyal readers, I appreciate all your feedback and requests regarding the newsletter! My DM’s are always open for any questions or requests to add to the newsletter or the Twitter Spaces.

Let’s recap:

Institutional players are favoring short Jun/Sep Calendar spread to capitalize on short term (before June) movement
IV is at historical lows in both BTC and ETH
Passage of time feels like an organic way to bring Vol back

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