Vol Commentary: Where has all the vol gone?

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

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January 3

What are we seeing in the markets?

It’s hard to imagine that just 5 short weeks ago IV was sitting at 100+ compared to how quiet the market is currently despite the DCG overhang. Both realized and implied vol continue to remain depressed. Rolling 30D realized vol settled at 38 & 26 for ETH & BTC respectively, near all-time lows. 31 MAR 50D IV is at 64 & 54, as both trended down from the week before. Not surprisingly, skew has trended towards the call in this low vol environment, where the 25D RR is almost premium neutral. Volume has been down across venues and crypto has not reacted much to economic news while other markets such as rates continue to remain volatile.

Looking forward, the economic calendar is fairly light, with NFP on Jan 6th and CPI on the 12th. We are seeing some minor interest for the 13 Jan expiries as it covers the CPI release.

Potential trade

Long 31 MAR ETH straddle. Short 31 MAR BTC straddle.

We continue like owning ETH vol against BTC vol. The 31 MAR BTC vol to ETH vol ratio sits at 84%, which is near the upper limit of the historical range of ~60% to 80%. As the historically higher beta asset, ETH could deliver higher realized vol off of any DCG related surprises. Otherwise, the ratio should decrease as the position rolls down the curve. For example, the same ratio for 90D realized vol is only 70%.

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January 3

What are we seeing in the markets?

Potential trade

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