This weeks Option Flows with Tony Stewart starts with commentary of 3 waves of selling and 3 strategies.

July 19

Might have expected BTC options to be as placid as spot, but volumes on @DeribitExchange on weekly expiry were 40% of perp as IV sellers punished high relative value IV longs.

3 waves of selling, 3 strategies, all suppressing implied vols, purging 5% off IVs. RV

2 / Wave1 – at weekly expiry short option sellers collect expiry gains and sell more options for next 1-2week expiries. This is normal across all products – trad+crypto. Naturally tends to impact front-end only, accentuated by buyers avoiding weekend theta. Performed well lately.

3 / Wave 2 – recent strategy, selling 1-5week ATM options, +buying multiple x 1-2week OTM option wings. All executed on screens, this week on 17/7 within 50min frenzy. Without knowing publicly if options positions are isolated or combined with spot delta, cogitation obscure.

4 / However, this strategy is essentially selling ATM options, anticipating little market movement, but covering risk should the market move, indeed to a point that if the underlying market moves very significantly, this also can potentially profit.

5 / Period 17/7 16:07UTC +50mins. Strikes initiator sold Jul24+Jul31 9k+9.25k, Aug 9k Puts, Jul31 9750, Aug11.5+12k Calls and simultaneously buying approx 3x multiple Jul24+Jul31 8k+8.5k Puts, July31 11.5-13k Calls.

According to OI data, the OTM wing options were opening trades.

6 / The impact of these trades is to lower the implied vols of the ATM options and to increase the implied vol levels of the OTM wings. Since OTM wings often have considerable demand anyway in BTC, this can be a headache for MM risk-management and more costly for retail punts.

7 / Wave1+2 attacked the front end of the term structure. Wave 3 – occurred 17/7 7:30pm UTC +2hours and resulted in selling options in Sep+Dec20 expiries which have held up relatively well recently creating a steep (contango) option curve across the maturities.

8 / Aug 11.5-12k Calls sold 200+, Sep14k Calls sold x500, Dec16k Calls sold x400. Premiums on these calls – Aug+Sep approx $100, Dec $350. These could be covered Call strategies attaining yield; alternatively, curve steepeners where vol desks sell long term vol to buy short-term.

End / All 3 waves/strategies applied IV pressure. All took advantage of high relative IV compared to RV. None defined direction emphatically. The options market is not revealing any divination of impending movement.

IV continues to trade at a premium, shock wary, but becoming weary.

Original thread on Twitter can be seen here.

July 23

In days gone by, news US banks were now authorised to custody client crypto would have moved the Earth, but while ETH blew through resistance, BTC rallied 2% and is yet to perform. In the option space, a similar pattern, reactionary near-term Call buyers, but lacking vigour.

2 / As often happens in crypto, news (if this was the catalyst) takes time to digest; news net positive, even through gritted teeth to purists.

The delay is often simple alpha opportunity. Those that bought near-dated ATM Calls when BTC hovered at 9350 did a 3x when BTC hit 9550.

3 / Example, July24th 9.5k Calls traded pre-news at 0.04 (37% IV), post news at 0.05 (40% IV), and 0.0165 (57% IV) post-rally. As can also be seen, as BTC spot >9.5k very short term IVs surged as buyers entered (short covering and new money) But this was isolated to 1week options.

4 / 1week and daily options trading 35-40% was considered too low on a news-related move which had potential follow-through, but with spot still at the 50% fib over the last 2month move range (8.8-9.8k), 1m+ option at 51% IV and 3month at 62% barely stirred.

5 / 2-way flow in August – buyers and sellers of Calls (+Call Spreads), within a saturated vol market, prevented IV elation.

Main focus areas 10-11k August Calls, bullish bias being matched by overwriters taking advantage of higher spot.

1w 8-9k Puts 1k+ protection + retrace view.

End / When it became clear that BTC action was limited to US time zone and not followed through in Asia, the pumped short-term <1w IV corrected back down [illustrated 24July 9.5k above 37% again!]. Appears greed is bad in the near-term options, active trading is wise. 1m IV holds.

Original thread on Twitter can be seen here.

July 23

ETH option volumes break all-time notional value highs, with 3:2 Call:Puts traded, 1m vol jumps from 52% to 67%, Call skew indicating upside Calls in demand across maturities.

BTC 1m vol at 50%, and has not justified the same response, as ETH spot massively outperformed BTC.

2 / BTC volumes picked up, but BTC IV steady: 1m 50%, 3m 62%, 6m 69%. ETH leads the way. Note that only ETH near <1m options have reacted so far, 3m+6m yet to respond. If BTC persists to rally strongly, the same could happen with such a steep term structure. ie fronts pump.

3 / Flows in BTC, 5:4 Calls:Puts, Skew turning +ve to Calls, but constant Call initiated selling, keenly priced, is keeping a lid on the upside.

BTC Call sellers Aug11k, Sep 10k-12k, Dec12+13k.

Notable bullish bias Mar16k Call financed by 6-7k Puts x500+

Near month Calls firmed.

4 / BTC IV strengthened in 1week options, with both Calls (9.5-11k) and Puts (8-9k) strong demand, shrugging off an earlier seller of 9.5k puts (low point IV) and further fostering the lack of strong community directional opinion.

1m+ IV has not firmed, but sellers absorbed well.

End / From the options market, there seems to be some discordance currently between ETH and BTC.

Previously highly correlated, now, ETH/BTC price one-year high, Realised vols differentiating, leading to Implied Vol separation. Will BTC resurge, or is the ETH narrative now distinct?

Original thread on Twitter can be seen here.

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