Option Flow: Unanticipated ETH ETF Chatter Flipped Approval Odds

In this week’s edition of Option Flows, Tony Stewart is commenting on the recent market movements.

Unanticipated ETH ETF chatter flipped approval odds.

While Funds+CT were long Spot ETH (most staking) the Option positioning was offside with protective Puts, or short yielding Calls.

ETH Spot +20% forced aggressive short covering of May 3.3+Jun3.6k Calls. IV surged 35%+.

2) For a while, ETH has been the place to over-write Calls to add yield to staked ETH.

If done wisely with 1:1 ratio this can be well managed; if greedy with over-selling Calls it can become a problem. Problems set in quickly on ETH ETF chatter, as short Calls had to market buy.

3) May 3.3k + Jun 3.6k Calls were the first to act quickly. But on the ETH Spot surge, MMs pulled back offers, not wanting to sell Gamma cheap.

May 3.4k-3.7k buyers followed.

As a consequence, IV levels in May tenor Options pumped >100% from 60%.

4) Fresh adding of upside was limited to some buying of May+Jun 4k Calls (+spreads).

Call Skew has been increasing recently in 1m+ tenors sighting longer-term ETH bullishness. But conspicuous absent rolling of near-date ITM Calls up(+out) indicates feeble short-term positioning.

5) Presenting the full picture, we did see the unwinding of OTM convexity bets in May31 4.4k and Jun 6k-7k Calls.

The latter included an unwind of 50k Jun 6.5k Calls bought mid-April for just such an event as yesterday, but the wait had eroded the value, and a loss was cemented.

6) We also observed some likely profit-taking (but can’t rule out opening) of Vol positions with sales of Jun 3.7k straddles which gave some Gamma/Vega back to MMs, and allowed IV to subside as Spot moved in a tighter range during APAC hours.

7) A bridesmaid for once, BTC also had a powerful rally given that the news focus was ETH-based.

Bullish biased flows with no oversized trades; we saw some profit-taking of May31 69+70k ITM Calls bought within the last week.

BTC Dvol discount perhaps neglects eclipsed BTC RV.

8) Still quite a few unresolved ETF actions to be concluded before approval, and aside from FED minutes tomorrow and potentially tradfi market-moving Nvidia results today, it would not be unsurprising to observe strong Gamma demand and non-aggressive supply.

Dvol BTC 58% ETH 76%

View Twitter thread.