Desk Commentary: Bathyscaphe

Since turning on a dime at 25,000 a week ago, bitcoin prices soared as a fresh narrative arc supporting the apex cryptocurrency catapulted to the forefront of collective consciousness.

Months of accumulated vol selling catalyzed by unabated overwrites suddenly flipped with monolithic heft, exposing what appears to be broadly inconvenient positioning that saw hundreds of thousands of dollars’ worth of vega bought in hours. By Wednesday, overnight bitcoin IVs had risen by an order of magnitude from 40% to 60%, while 30 June at the money IVs gapped as much as 10 points. Dealers scrambled to trim ostensibly outsized risk, and takers looked for any opportunity to grab a sliver of upside, with vol buyers outnumbering sellers by seemingly 10:1 at intervals.

ETH options flows were, however, far more muted in comparison initially, with less of a colossal surge in implieds and more of a begrudging melt up instead. Outsized gamma sitting on dealer books at 1800 for the quarterly expiry likely played a role, as did the collective mass of vega spread across fixed strike risk at 1900 to 2400 as far out as March of next year.

That dichotomy saw BTC IVs ‘flip’ those of ETH across the entire term structure, torpedoing any hopes of success for mean-reverting rel-val cross currency vol spreads. In a continuation of trends year-to-date, the appetite for incremental ETH upside has been entirely outstripped by call sellers. In contrast, the relative paucity of BTC supply suddenly stood stark, punctuated with an end-of-day coup de grace that saw over $80,000 worth of vega cleared in a single clip in a trade that smacked of a vega stop.

This ambiance had occurred before bitcoin knocked at 30,000, beyond which further fireworks awaited as players rushed to cover remaining open strikes ahead of a blockbuster quarterly where 31,000-33,000 calls in BTC and 2,000-2,100 calls in ETH were suddenly in play. Vega remained firm through much of the midweek sessions before being marked lower, particularly in ETH, where a failure to break beyond the gravitational force of immodest open interest at 1900 saw a fresh inundation of call sellers as vega profiles swelled from legacy vanna profiles. By contrast, 23 June gamma stayed sticky upwards, indicating that not all houses were in order in the last days of June.

Crisp taker interests in reloading on six-month call wings punctuated the week’s relative pandemonium as longer-dated vols finally receded two points below the 50% threshold for December bitcoin atm IVs. While a resilient trading tape has witnessed a static few hours around the 30,000 pin, the implications of flows that have ranged from sizable mid-curve wingy call spreads to more vega-laden quarter delta exposure tell a different story. These flows seemingly portray that the consensus amongst larger allocators seems to be gravitation towards further secular upside, setting the stage for a potentially dramatic finish to the second quarter or the inception of the third.

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