Options data is beneficial not only to the options traders but to any trader willing to learn more about the general anticipation of the market. Genesis Volatility options charts provide you with meaningful insights into the market. Learn more about the metrics in this article.
Order Book Skew
The volatility skew, also known as the smile, represents an option’s implied volatility, given different strike prices or delta values.
The Black-Scholes model assumes a constant volatility throughout the life of an option, yet the underlying may behave differently, depending on where it’s trading.
For example: if crypto currencies were to drop 50% tomorrow (or double in value), the volatility would probably increase; therefore, out-of-money strikes and deltas are typically priced with richer volatilities. The volatility smile captures the market’s pricing/opinion of this phenomenon.
Traders can look at the volatility smile and form opinions as to whether the volatility smile is priced too richly or isn’t priced in enough, leading to profitable trading opportunities.
Order Book Term Structure
The volatility term structure represents the “at-the-money” implied volatility, given different expiration dates.
The Black-Scholes model assumes a constant volatility throughout the life of the option.
Volatility is known to “cluster”, meaning low and high volatility periods are clustered together. Because of this, the average volatility over the life of the option will be different given the current volatility environment and how much time is left until expiration.
For example: high-volatility environments will tend to have higher implied volatilities for short-term options versus long-term options, pricing a revision to the mean over time. The inverse is true for low-volatility environments.
Traders can use the term structure charts to identify relatively expensive and relatively cheap expirations to identify profitable trades.
The 24hr option trading activity pie chart is broken up into four types of activity: calls bought, calls sold, puts bought, puts sold.
Traders can identify days with unusually large concentrations of specific trading activity and structure trades against one-way flow.
For example: some days might have significant call-buying activity, which leads to over-priced calls. This creates opportunities to trade synthetic calls (put + underlying) or opportunities to take the other side of the flow with structures such as risk-reversals and collars.
Open Interest reflects the number of outstanding contracts in the market. Each contract has a buyer and a seller.
Usually, market makers post bids and offers for contracts in the marketplace. Once a market participant trades against one of these quotes, a contract comes into existence. This increases the market maker’s inventory as well as the market participant’s inventory.
Note: market makers are not necessarily involved; sometimes two participants will meet in the middle and trade together, increasing open interest.
Trades can also decrease open interest or leave it unaffected, depending on how the trade affects overall inventory.
Traders can look at open interest to gauge relative market liquidity and find concentrations of risk. This will help traders execute favorably and identify points of concentrated market exposure.
Traders can also monitor open interest overtime to gauge whether the market has open/closed additional positions in the option market. These clues help to gauge what other participants are doing.
1 Hour ATM Volatility
The at-the-money (ATM) volatility chart shows the average ATM volatility for each hour over the past month. This gives a good idea regarding how volatility has changed, and at which rate it has changed.
Using the days-until-expiration slider, we can view how volatility has changed for options within the given expiration window.
This helps traders identify volatility trends in the specific maturities of interest.
It’s important to note that different volatility maturities have different sensitivities.
1 Hour 30/20 Skew
This chart displays the difference between the call implied-volatility and put implied-volatility for all options which have delta values between -.30 and -.20 (puts) or between .20 and .30 (calls).
This chart is useful to gauge how expensive calls are, versus puts.
This displays the symmetry (or asymmetry) of the volatility smile, over the past month.
Using the days-until-expiration slider, we can view how volatility smile symmetry has changed for options within the given expiration window.
Traders can use this chart to gauge the relative range of the volatility smile and how sensitive it is.
There are many option structures traders can construct in order to capture profitable trades using the volatility smile.
Top trades will display the 100 biggest trades of the day by size (USD).
We can filter these top trades by the following toggles:
Buy/Sell: Whether the aggressor bought or sold the options
Non-Block/Block: Whether the options traded were a block trade or not.
Non-Liquidation/Liquidation: Liquidations are trades forced by Deribit to reduce risk of a given market participant’s portfolio when maintenance margin has been exceeded.
Traders can use this tool in order to monitor the option flow of the biggest trades.
These big trades are clues into the activity being executed by larger traders, which can impact the market pricing and provide profitable opportunities.