By @foreignative
We wanted to start by wishing everyone a happy 2022 but unless you were short vol (especially wings) or long puts the likelihood is we’ve missed that opportunity. BTC decided to greet the year with an 11% dip and ETH, not one to be outshone, stumbled 15% lower.
The overarching theme across the board is one we’re all too familiar with, a sea of red. As price action takes cue from BTC all sectors but ‘Oracle Data’ appear to be bleeding out (Fig 1). Rather interestingly, this sub group has managed to remain buoyant, posting a 2.78% gain on the week despite battling amidst the crashing waves of liquidations in neighbouring categories. This mainly because Chainlink is up by over 36% YTD.
We strongly encourage you to explore the index aggregator tool as it enables you to dig into subsectors and study thematic plays.
As is industry knowledge, near-end Vol suppression has become somewhat of a given phenomenon, however nowhere is this phenomenon better highlighted than via 10D flies in ETH (Fig 2).
IV usually seems content to trundle just north of 0, however 1wk IV ventures into negative territory with an uncanny frequency. We always welcome discourse so your conclusions/interpretations are welcome.
On the subject of IV, 25D and 10D Riskies in BTC appear to be performing a swan dive as Puts continue to swell in favour over the short term (<6mo) whereas the back end (6mo and 1yr) appear almost reluctant to look beneath the surface (Fig 3).
We’ll be closely watching how the back end interacts with parity as they have only both been dragged south markedly on 3 occasions since Q3 20. A spread play might possibly be on the cards if we see 1) another aggressive push lower (possibly even beneath parity) and 2) 6mo over excitedly bounds 1yr as it is apparently becoming accustomed to. If there was a mean reversion play to be had, this may prove to be a contender with the right setup.
As always for further discussion please feel free to reach out on Telegram @foreignative
