Vol Commentary: Vols Near Historical Lows

Cumberland is commenting on the recent volatility and potential opportunities to take advantage of it.

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What we see in the markets

Despite already starting the week with vols near historical lows, vols continued to be crushed last week. We saw both BTC & ETH IVs dipping below 40 before rebounding slightly to settle around 40 for the JUN expiry. Hopes of a spike in vol due to debt ceiling uncertainty subsided somewhat as Biden & McCarthy reached a deal. However, it is not a done deal as the legislation will now begin its journey down an obstacle laden path through congress for official approval. With BTC vols outperforming, the Cumby Ratio (BTC vol / ETH vol) spiked back up to ~101 again, up from the high 90s we saw last week.

Potential Trade

Buy JUNE 2,200 ETH calls & Sell JUN 25,000 BTC puts

With JUN ETH vols slightly below 40, there is value in in buying cheap upside, especially to cover the chance that the Fed skips the June hike. Given that the Cumby Ratio is above 1 (e.g. BTC vol is elevated relative to ETH vol), one could consider funding the trade via selling BTC puts. For example, the trade can be structured as cashless upfront by funding the purchase of the 2,200 JUN ETH call with the selling of the 25,000 JUN BTC put.