Vol Commentary: Where have all the (Volatility) cowboys gone?

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

While banking related headlines persists, the vol market has remained relatively sanguine as the collapse in both implied and realized vol continues, with JUN IV now sitting slightly below 50 for both BTC and ETH. Given the supply of long dated call selling, the term structure remains extremely flat, making longer dated calls attractive. For example, SEP ETH 50D calls sit at 52 vol, which are near historical lows. The BTC vol to ETH vol ratio remains sticky at ~1.0, making ETH vol an attractive buy both from an absolute and relative value perspective.

Potential Trade Ideas

1. Buy SEP ETH calls

Buyers are not being charged much more in vol terms for longer dated options and should take advantage. For example, SEP 50D IV is only 52, not much higher than the 50 for the JUN expiry. For participants looking to lock-in gains from the rally in ETH year to date, selling spot exposure and buying calls is a good way to lock-in the gains while not missing out on additional upside.

2. Sell JUN BTC calls / Buy JUN ETH puts

For those not as bullish, this could be a chance to take advantage of BTC calls trading rich relative to ETH. Selling BTC calls to buy ETH puts both adds downside protection while taking advantage of the BTC vol to ETH vol ratios being close to 1.0. Despite ETH vols being expected to be lower post Shanghai, it should remain the higher beta asset relative to BTC. The JUN expiry also covers the June 13-14 FOMC meeting.