- Implied Volatility for BTC and ETH declined greatly.
- Traders turned optimistic, and demand for call options rose.
The crypto market has witnessed substantial volatility and fluctuations over the last few months. Nevertheless, recent data suggested that market participants anticipate a decrease in volatility moving forward.
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Low volatility
This was indicated by Greeks.Live’s data, which showcased a significant decline in the Dvol (Volatility Index) for Bitcoin[BTC] and Ethereum [ETH]. It reached 37%, the lowest level recorded in the past two years.
The crypto market’s Implied Volatility level has also hit its historical low. This signified an exceptionally low volatility period in the digital asset space. Investors might find a more stable environment for their investments going forward. However, this development could also reduce trading opportunities for those who thrive on price swings.
Additionally, according to Greeks.Live, the low liquidity market witnessed a surge in spikes and drops, with daily options prices experiencing a seven-fold increase. The data suggested that such occurrences are likely to further escalate in subsequent markets. The subsequent low liquidity in the market could result in wider bid-ask spreads, potentially affecting trade execution.
Source: Greeks.Live
The low volatility could be attributed to traders turning bullish toward BTC and ETH. This was indicated by the declining put-to-call ratios for both BTC and ETH. A falling put-to-call ratio suggested that most traders were taking optimistic bets on both BTC and ETH.
The number of ETH call options being bought by traders outnumbered the BTC call options by a large margin. This development suggested that the majority of the traders in the crypto markets were more hopeful about ETH than BTC.
Source: TheBlock
Traders expect to see green
Moreover, the options skew for both BTC and ETH surged materially over the last few weeks.
The surge in BTC and ETH options skew delta 5 means that the demand for call options with a 5% probability of being in-the-money significantly grew compared to put options. This suggested that market participants are becoming more bullish on BTC and ETH, expecting their prices to rise.
For context, the skew delta indicates the market sentiment towards these cryptocurrencies, with a stronger bias towards upside potential.
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The skew in BTC and ETH options refers to the uneven distribution of call and put options. It considers options contracts that are 5% away from the current market price.
A surge in skew delta 5 indicates a spike in the demand for call options compared to put options at that specific distance.
Source: The Block