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Realized volatility has fallen sharply following the announcement of an interim peace agreement between the US and Iran, reversing much of the volatility spike that accompanied BTC's brief drop below $60K earlier this month.
As such, realized volatility is returning to the subdued levels that have characterized the May-to-August summer period since 2023.
Options markets are increasingly pricing for those calmer conditions to persist. Short-dated BTC at-the-money implied volatility has fallen to 33%, only marginally below longer-dated tenors at 37%, leaving volatility expectations close to their year-to-date lows across the term structure.
The improvement in macro sentiment has also driven a significant reduction in demand for downside protection.
BTC's 7-day 25-delta put-call skew has recovered from -18% to -1.9% in just two weeks, while ETH's equivalent skew has rebounded from -19% to -1.0%, reflecting a substantial unwind in the bearish positioning that dominated options markets during the recent selloff.
While traders have become markedly less defensive, options markets have not yet turned outright bullish.
READ MORE (published June 5): BTC, ETH crash; TRON hits downside target; HYPE hits new record high!
Since 2023, volatility in crypto has shown seasonal patterns.
In particular, realized volatility – a measure of the actual historical price fluctuations over a given period – has fallen to the lower end of its yearly range around the summer months of May to August.
The chart below plots the 7-day realized volatility on hourly returns and reveals that realized volatility often moves sideways between 30-40% through the summer, before a sharp upward bounce around September time.
In May 2026, 7-day realized volatility fell to 26%, within 2 percentage points of the year-to-date low realized in early January.
After a brief move higher in volatility – when spot price fell below $60K – the announcement of an interim peace deal between the US and Iran has seen realized volatility drop by 30 percentage points from its high of 70% to 40%.
It is now once more approaching the range we’ve seen it linger around in previous summers.
With volatility having eased significantly over the past week, options traders have revised down their expectations for future volatility.
Recent diplomatic efforts to bring an end to the four-month-long conflict have encouraged traders to price for a continuation of the calmer market conditions observed in recent sessions, resulting in lower at-the-money implied volatility across maturities.
7-day BTC ATM IV (a forward-looking measure of the volatility with which traders expect BTC to trade over the next seven days) is currently at 33%, while the IV of longer-dated options is only marginally higher at 37%.
That suggests that, for now, demand for options is close to its year-to-date low across all maturities.
Sentiment across risk-on assets this week has moved higher amidst the sharp drop in oil prices, which is rapidly approaching pre-conflict levels.
BTC briefly rose to a two-week high, jumping above $67K and pushing options traders to further reduce their demand for downside protection.
The 7-day 25-delta put-call skew, a measure of the implied volatility difference between equally out-of-the-money put options and call options, rose to a one-month high of -1.9%.
While the negative value still shows more demand for put options over calls, it marks a significant turnaround from the -18% skew only two weeks ago.
The peace deal in the Middle East has not been enough to turn traders bullish just yet.
But it has driven a significant reduction in the bearish sentiment that has characterized options markets for most of this year.
ETH volatility smiles show a similar recovery in sentiment.
As spot price broke above $1,800 earlier this week, 7-day put-call skew nearly shifted bullish, trading at -1%.
Since the June 6 local bottom, spot price is up more than 15%, while skew has recovered from -19% all the way to -1.0%.
DISCLAIMER:This article is provided for general information and reflects the author’s views only. It does not constitute investment advice, nor an offer or solicitation to buy or sell any financial instruments or digital assets. Your ability to access or use any products or services mentioned may be subject to the laws and regulatory requirements of your jurisdiction.