TI Weekly Options Market: Don't Panic

TI Research

The spot prices of Bitcoin and Ethereum ended the third week of May in a nearly halved form. Such a bleak ending was beyond everyone's expectations. Tighter supervision is the most important fuse in this adjustment, and the bears have won a big victory. Where the market is now, the probability of price changes has been difficult to predict, and the odds of investment appear to be particularly critical.

Digital assets suffered heavy losses in May. As the market evolves further, there is considerable doubt among investors that the bull market is over. From the macro level analysis, the Federal Reserve is still maintaining a loose monetary environment and interest rate has not been really implemented. Internally, the USDT issuance rate shows no sign of turning, while institutional investors are still diversifying around digital assets, and even exchanges are not as leveraged as they were in April. With relatively healthy fundamentals, digital assets exhibit volatility levels above 312, and there are two important differences between the current digital asset market and 312:

  • The overall market value of digital assets is much higher than it was in March 2020, making the correction even more unexpected.
  • This adjustment is an individual market for digital assets, with equity markets and commodities running smoothly.

Summarizing last week's options market data, we found that:

  • Volatility in both Bitcoin and Ethereum is at historic peaks;
  • Bitcoin at value option implied volatility rise to around 150;
  • The Ethereum forward implied volatility curve remains optimistic;
  • The digital asset market is likely to remain highly volatile for some time to come.

Thanks to Bit.com for supporting the important data content of this article. Professional options trading platform, please visit: Bit.com


Not surprisingly, the most significant volume in the Bitcoin options market occurred on May 17 and 19, with the huge correction causing investors to buy options to adjust portfolios. At the same time, options selling has dried up in some sessions as spot prices have adjusted much more than expected, with traders reluctant to play the counterparty to volatility. Given that the market has yet to show signs of stabilising, options volume is expected to remain active in the coming week.

Bitcoin option premium volume (left) and Bitcoin option contract volume (right), as of 20:00 May 24, data source: gvol.io

After a huge pullback, the implied volatility curve in the short- and medium-term of Bitcoin has shifted significantly to the left, and investors' expectations for digital assets are very pessimistic. Panic is rampant and the put trade is crowded due to a dearth of options sellers.

Short- and medium-term implied volatility surface change for Bitcoin options, as of May 24, 18:00, Data source: gvol.io

The Bitcoin forward option curve shows some arbitrage opportunities. The implied volatility curve in September skew to the left, while the implied volatility curve in December shows a positive structure. Traders can look for investment opportunities in calendar spreads in such differences.

We need to remind investors that when selling a coin-based put option, the digital assets that need to be delivered will also be large if the currency price approaches zero. In the current market, digital assets put options inherent risk needs to be taken seriously by investors.

Bitcoin option forward implied volatility surface, as of May 24, 18:00, data source: gvol.io

Observed from the Bitcoin implied volatility term curve, the Bitcoin term curve continues to remain inverted as volatility rises again. Investors should be reminded that there is still a high Gamma risk in selling short options even if prices repair, given the high volatility in the market.

Implied volatility term structure of Bitcoin options, as of 20:00 on May 24, data source: gvol.io

Observed from high-level data, the ATM implied volatility of Bitcoin options is at an absolute historical high, and the variance of volatility is not stable. The market may appear new swings at any time, that is to say, the risk of adjustment still exists. Given today's market environment, implied volatility is even more elusive than skewness.

Bitcoin option implied volatility (left) and skewness (right) change over 1 month, as of May 24, 18:00, data source: gvol.io

Volatility observation through historical interstitial maps shows that high-volatility markets pull realistic volatility up to the historical interstitial of 75%. As of this report, realistic volatility levels are above historical averages for all window periods.

Historical bit map of realized volatility, as of 20:00 May 24, data source: gvol.io

As the market adjusts, Bitcoin's actual volatility has hit a new high for the year. Starting from the relationship between implied volatility and actual volatility, the implied volatility of options has a certain discount to the actual volatility. Considering that implied volatility has already turned around to a certain extent, the adjustment may have entered the second half.

Actual vs implied volatility, as of 20:00 on May 24, data source: gvol.io


Trading in the Ethereum options market has been very active amid the fierce market adjustment. Unlike Bitcoin, Ethereum option volume on May 17 and May 19 did not show significant outliers, and option volume has remained relatively balanced over the past seven days.

Ethereum option premium turnover (left) and Ethereum option contract turnover (right), as of 20:00 May 24, data source: gvol.io

Ethereum has been the best performing digital asset this year, yet as the market has fallen, the short to medium term implied volatility curve has shifted to the left. In the short term, investors are no longer optimistic about Ethereum.

The short- and medium-term implied volatility curve of Ethereum options, as of 20:00 on May 24, data source: gvol.io

The Ethereum forward implied volatility curve still maintains a relatively positive shape.

The term structure of the implied volatility of Ethereum options, as of 20:00 on May 24, data source: gvol.io

Analysed from the term curve of implied volatility, the term curve shows a standard inverted pattern as the implied volatility of short-end Ethereum breaks through an all-time high. Investors are reminded that the outliers of June and September have not returned, and that traders are putting more weight on the current market move.

Ethereum options implied volatility term structure, as of 20:00 on May 24, data source: gvol.io

Observing high-level data, Ethereum has seen a big jump in implied volatility, similar to Bitcoin. The difference is that Ethereum implied volatility has moved steadily upwards and the market adjustment appears to be more orderly. From the perspective of skewness index, Ethereum option skewness has reached an exaggerated level (-50) during the downward trend, and such put option premium has brought investors certain trading opportunities.

Changes in the implied volatility (left) and skewness (right) of Ethereum options in the past month, as of 20:00 on May 24, data source: gvol.io

Observing from the historical quantile chart, Ethereum's actual volatility also reached a new high for the year.

Actual volatility historical quantile chart, as of 20:00 on May 24, data source: gvol.io

Looking at the historical changes in volatility, actual volatility is over 300% and implied volatility is over 150%. Given that volatility is still not on a downward trend, we have reason to expect this high volatility environment to continue for some time. Like Bitcoin, Ethereum's implied volatility is also at a discount.

Comparison of actual volatility and implied volatility, as of 20:00 on May 24, data source: gvol.io


Large-scale market adjustment is often accompanied by a variety of dissimilated market patterns. If you look back at digital asset cycles, bull and bear durations can last a long time. After a 50% pullback, we don't need to panic to correct. The industry is constantly moving forward, and the value of tokens is based on the progress that comes from technological iteration. When it is impossible to predict market fluctuations, tokens with real value are the best weapon to cross the cycle.




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