Short BTC Long ETH trade in options - too good to be true?

Discussion in 'Options' started by Atikon, Jul 2, 2023.

  1. Atikon

    Atikon

    I was looking at BTC & ETH IV yesterday. Disclosure: I don’t trade crypto at all. I have a tiny allocation to SOL and ETH, so I’m looking for reasons why I shouldn’t do this trade. ETH implied volatility now trades below BTC IV, which never lasted very long looking at the history.

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    Realized volatility for both BTC and ETH is currently in its low percentiles. Historically, such periods of low volatility have often been followed by an increase in realized volatility, leading subsequently to an ramp up in implied volatility.

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    I can see ETH has a few conferences upcoming and Dencun (lower gas fees) incoming. BTC had a potential catalyst squashed recently with Blackrock getting a return-to-sender from the SEC and not much on the horizon until October.

    Looking at the realized vol cones 60 days or later looks fine to me percentile wise.

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    As this is my first venture into crypto volatility, am I missing something here (event, upcoming regulations, etc.)? It looks to me like going long on ETH IV and short on BTC IV ~60 DTE would make sense here.
     
    ETJ likes this.
  2. shh

    shh

    interesting analytics, what broker/platform is that? I googled devol but not much luck yet
     
  3. Atikon

    Atikon

    shh likes this.
  4. MrMuppet

    MrMuppet


    Be very careful with this trade, IMHO the POS update triggered a regime change in ETH.

    Instead of being a speculative/momentum asset ETH became a yielding asset, so we started to see a index call skew just like we do in ETH. Ppl stake ETH and write calls or collars on it.

    I don't see those massive call skews coming in anymore like we used to have when ETH was still proof of work unless we get a major bull run.

    ETH is dead right now. No catalysts unlike BTC which has the government sale of seized BTC as well as the Blackrock re-filing of the ETF. I wouldn't bet on ETH stat vol > BTC stat vol here :)
     
    Atikon likes this.
  5. Atikon

    Atikon

    Yeah call skew sort of disappeared since 22:

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    doesn't seem to be clawing back with the same force. Good point about the government, should have considered that.
     
  6. Sekiyo

    Sekiyo

    I would not Long BTC and Short ETH based on this chart.
    Price is making new lows under a declining 10 SMA (Monthly wise)

    The volatility has been declining the past year,
    Maybe volatility is historically cheap.
    However I'd be delta neutral.

    upload_2023-7-3_1-51-6.png
     
    Last edited: Jul 2, 2023
    Atikon likes this.
  7. shh

    shh

    @Atikon, I find the volatility cone charts particularly useful. By the way, what do you think of ETH and BTC IV converging in the first chart? any insights?
     
  8. Atikon

    Atikon

    I'd like them to diverge again if I take the trade
     
  9. Atikon

    Atikon

    Alright took the trade, I'll update how it goes
     
    shh likes this.
  10. shh

    shh

    long OTM call on BTC and short OTM put on ETH would have worked really well last year
     
    #10     Jul 9, 2023