SignalPlus Volatility Column (20240904): Continuous Decline
Accompanied by recent sluggish sentiment, Bitcoin has performed poorly since last night during the US trading session, dropping by 2.5% around ten o'clock. The downward trend continued during the Asian trading session, with a temporary run on liquidity causing the price to fall to $55,606, before slightly rebounding and fluctuating around $56,000. Implied volatility has shown a negative correlation with price changes throughout the day. After experiencing significant volatility during the day, the term structure of BTC and ETH has shown Bull Flattening, with a more pronounced uplift in the long end of ETH, while the front-end volatility levels have displayed a clear inverted shape, supported by an intraday high of 85% RV.
Source: SignalPlus
The changes in the front-end IV of ETH are not only higher than that of BTC; in numerical terms, the current IV of ETH is at a historical high (above the 75th percentile), and the implied hedging costs from the RV volatility cone also reflect the current rich VPR, which may attract strategies that bet on falling volatility, potentially weakening the upward slope of the term structure in the short term.
Source: SignalPlus
Source: SignalPlus
Source: Deribit (as of 4 SEP 16:00 UTC+8)
Due to further price declines breaking recent lows, the front-end Skew has retraced all of yesterday's gains back to lower levels. The Vol Premium at the tail end of various maturities has also been set at higher positions, with the BTC related to the US elections on November 8 showing the most significant increase, along with the subsequent two expiration dates. The convexity of ETH at the end of the year (27 DEC) remains at a local high, rising to 3.53%.
Source: SignalPlus, Vol Skew
Source: SignalPlus, Fly
From the trading perspective, BTC trading has been relatively balanced in direction. The price drop has reminded traders to set extreme scenario protections for their positions (e.g., 29 NOV-35000-P 500 BTC Long put), while also providing those who remain bullish with cheaper opportunities to establish bullish strategies, such as the 27 SEP 63000 vs 65000 Long Call Spread (200 BTC per leg).
Source: SignalPlus, Block Trade
