TI Weekly Options Market: Ethereum Breaks Through $2,100 Again- 2021 Week 15

As stated in the weekly report last week, the spot price increase of Ethereum has a certain degree of market confidence. As of the date of publication, the spot price of Ethereum is still steadily maintained at the range of US$21,00. At the same time, the rise in the price of Ethereum has driven the market for other digital assets, and digital assets such as HT and XRP also achieved considerable growth in the second week of April.

Summarizing the data of the last option market, we find that:

• The trading volume of Bitcoin options has risen significantly, and the call option premium has formed again;
• The combination of higher skewness and lower volatility indicates that the possibility of significant future price changes is not high;
• Various high-level data show that option investors have stronger confidence in Ethereum;
• The rise in the prices of Bitcoin and Ethereum has not changed the downward trend of volatility.

Bitcoin Achieves a Breakthrough

Compared with last week, this week's Bitcoin options transactions are slightly more active. When there is no significant change in trading volume, we can observe market micro-changes through block transactions. Many traders are capturing the futures premium of Bitcoin spot and delivery contracts. Such trading strategies have been very popular in recent months.

Bitcoin option premium turnover (left) and Bitcoin option contract turnover (right), as of 18:00 on April 11, data source: gvol.io

In the second week of April 2021, the spot price of Bitcoin once again exceeded $61,000, and option investors were no longer overly cautious. A large number of call options buying increased the entire implied volatility surface, and at the same time brought the premium of call options. Observed from the implied volatility surface, the implied volatility surface of options of all maturities is more positive than last week.

Changes in the implied volatility surface of the short-term Bitcoin option period, as of 18:00 on April 11, data source: gvol.io

From the perspective of the medium and long-term implied volatility surface, the market seems to have raised its expectations for currency prices. The forward implied volatility surface shows a certain characteristic of a long tail on the right side, but it is not obvious.

Changes in the implied volatility surface of the forward bitcoin option period, as of 18:00 on April 11, data source: gvol.io

Although the Bitcoin spot market turned out well last week, the implied volatility of each maturity still dropped slightly. The term structure of implied option volatility is similar to last week, still presenting a "Contango" pattern. The market amplitude has decreased and the volatility has weakened. According to glassnode's Bitcoin chain data, the transaction volume above $52,000 has exceeded 10% of the Bitcoin circulating supply, which seems to be good news for stabilizing prices.

The term structure of the implied volatility of Bitcoin options, as of 18:00 on April 11, data source: gvol.io

Observing the high-level data of options, we still haven't seen the implied volatility rise in the context of the rise in the spot price of Bitcoin, and even a slight decline. However, the value of option skewness did show a trend of picking up, and the value of call option skewness returned to double digits. There is no need to worry too much about the currency price decline in the short term. In the past week, what we have seen is a market combination with declining volatility and increasing skewness.

Bitcoin options implied volatility (left) and skewness (right) changes in the past month, as of 18:00 on April 11, data source: gvol.io

Judging from the historical quantile chart, the actual volatility of Bitcoin in the short window (1D, 7D, 14D) is already close to the 25% range.

Comparison of historical volatility and actual volatility, as of 18:00 on April 11, data source: gvol.io

Observing the changes in volatility, although the price of Bitcoin has rebounded to a certain extent, the downward trend of implied volatility and actual volatility has not changed.

Comparison of historical volatility and implied volatility, as of 18:00 on April 5, data source: gvol.io

Ethereum Price Breaks Through $2,100

The spot price of Ethereum rose from US$1,800 to US$2,100, a cumulative increase of more than 15%. Compared with the price, the transaction performance of Ethereum options is very general, and there is no significant change.

Ethereum options trading volume, as of 18:00 on April 11, data source: gvol.io

From the perspective of the implied volatility surface, the surface form of Ethereum options is more optimistic than Bitcoin. It is worth noting that the short-term and medium-term Ethereum call options have already occupied a premium advantage. Such optimistic option holdings are indeed a bullish signal.

Changes in the short-term implied volatility surface of Ethereum options, as of 18:00 on April 11, data source: gvol.io

After breaking the new high, the spot price of Ethereum stabilized in the range of $2,000, and the implied volatility surface of Ethereum forward options also showed a certain positive shape.

Changes in the implied volatility surface of Ethereum options forward, as of 18:00 on April 11, data source: gvol.io

The implied volatility of Ethereum has dropped slightly compared to last week. The September volatility premium mentioned in the last weekly report has been traded, the hump structure disappeared, and Ethereum presents a standard "Contango" futures structure.

The term structure of the implied volatility of Ethereum options, as of 18:00 on April 11, data source: gvol.io

Similar to the implied volatility of Bitcoin options on value, the implied volatility of Ethereum options on value is also in a downward trend. However, the skewness index of options has changed significantly, and traders are confident in the performance of the Ethereum spot price. In this way, we can draw the conclusion that volatility has decreased and skewness has increased, and investors are more willing to hold positive positions, but the market still does not have full confidence in unexpected changes.

Changes in the implied volatility (left) and skewness (right) of Ethereum options in the past month, as of 18:00 on April 11, data source: gvol.io

According to the historical quantile chart of volatility, the current real volatility of Ethereum is near the historical midpoint.

Comparison of historical volatility and actual volatility, as of 18:00 on April 11, data source: gvol.io

Considering that both the implied volatility and actual volatility of Ethereum are at a low level, we are optimistic about the opportunities provided by traders with rising volatility.

Comparison of historical volatility and implied volatility, as of 18:00 on April 11, data source: gvol.io

Conclusion

Last week, both Ethereum and Bitcoin have seen a significant price increase, and we can clearly feel that the trading sentiment in the digital asset market has rebounded to a certain extent. In the absence of the main line of the market, the strength and duration of this rebound have yet to be verified. It is recommended that investors have higher requirements for the risk-return ratio.