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.
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.
© 2022 Genesis Global Trading, Inc. All rights reserved. “Genesis”, the Genesis logo, and other Genesis trademarks and service marks referenced herein are trademarks and service marks of Genesis and are used and registered throughout the world.