SignalPlus Volatility Column (20240826): Skew

Yesterday (25 AUG) was not a peaceful Sunday. In the Middle East, Israel declared a 48-hour state of emergency, and the risks caused by geopolitics were injected into the market, causing the front-end IV to rise for a time. In terms of digital currency, TGs founder Pavel Durov was arrested in France on charges including terrorism and fraud, causing TON Coin to plummet by more than 16% + within the day, triggering global attention to freedom of communication and privacy. In addition, the Ethereum Foundation transferred 35,000 ETH to the Kraken wallet, triggering market speculation about potential price fluctuations, causing the currency price to fluctuate slightly over the weekend, with an actual intraday volatility of about 50%. Subsequently, its executive director came out to clarify that the transfer was only part of routine financial management, aimed at balancing the foundations accounts, and calming market sentiment. Under the influence of recent news, the bullish sentiment of digital currencies has continued to weaken, and the risk aversion sentiment that has spread in the market has caused the leverage on the contract to continue to decline. The perpetual contract funding rates of various exchanges are all declining, and even negative values have appeared.

Source: SignalPlus

For BTC, with the increasing influence of macro news and the lack of new narratives in the crypto community, the actual volatility of the coin price has remained at a low level of 20-25% in the past two days, and the IV that rose briefly at the front end was quickly reduced to its original shape. On the other hand, the overall implied volatility level also dropped significantly during the day. In addition to the fact that the Realized Vol is low, a large amount of Top Side selling of BTC during the day, especially at the far end, is also the reason for the decline in IV. We can also see that this wave of Flow also caused a decline in the far-end Vol Skew. From the perspective of the volatility cone, it is already significantly lower than the historical 25% percentile, the curvature of the smile curve is also flattened, and the FLY value has dropped significantly.

Source: SignalPlus

Source: SignalPlus

We have seen similar changes in ETH. Due to the decline in realized volatility, the IV Term Structure has become steeper, but since ETH does not have the Top Side Selling Flow that occurs on BTC, the forward IV has not dropped much. Similarly, although Convexity has dropped, it is still relatively mild compared to BTC. From the perspective of Vol Skew, the mid- to long-term RR has also dropped. In addition to the consideration of correlation with BTC, the impact of buying put options from sep and oct cannot be ignored.

Source: SignalPlus

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