Vol Commentary – Week 47, 2022

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

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November 21

What we are seeing in the markets

Markets calmed down surprisingly quickly given the magnitude of the impact of the FTX collapse. 7D realized vol fell to 42% / 60% for BTC and ETH respectively. In the very short term, we think that both the World Cup and US Thanksgiving might mean the market stays calm. However, as the credit deleveraging continues, volatility still lurks around the corner. Uncertainty around the status of Genesis pushed vols back slightly higher over the weekend, with 12/30 implied vol now sitting at 71%/93% for BTC/ETH. The BTC to ETH vol ratio still sits at the higher end of the range at 79% in the March expiry. Historically, the ratio usually ranges between 60% to 80%. Lastly, Solana vols remain elevated with 30-day IV at 195%, with SOL vol to ETH vol ratio sitting well above its historical range.

Potential trades

1. Buy March ETH Calls

Mar ETH vol looks attractive relative to Dec ETH vol, trading at 96% vs 93%. Furthermore, the BTC vol to ETH vol ratio for March sits at 79%, which is also near the high end of the historical range. For counterparties seeking to potentially take advantage of the relatively low March ETH vol levels, look to outright long March ETH calls. This not only gets exposure to vols at a relatively attractive level, but also allows for upside potential if negative headlines were to clear.

2. Sell December SOL puts

Although SOL has settled down slightly post the FTX collapse, vol remains elevated with 30D implied at 195% and 7D realized at 104%. For long-term holders of SOL who are looking to buy at discount levels, consider selling 30th Dec $9 puts at ~$1. This generates a premium of ~11% of notional for those who are committed to buying at a specific price target.