Bybit X Block Scholes Crypto Derivatives Analytics Report (Oct 9, 2024): BTC Options Implied Volatility Declines as Call Options Volumes Surge

Key Highlights:

• Our weekly crypto derivatives analytics report dives into macro events, the current state of crypto and trading signals from spot trading volume and futures, options and perpetual contracts.

The uncertainty surrounding the upcoming U.S. election is clearly reflected in the term structures of both BTC and ETH implied volatility. Although implied volatility levels have been declining, realized volatility has increased in early October due to recent short-term fluctuations in spot prices. This downward trend in implied volatility is in stark contrast to the typical buildup of positions observed before known event risks, such as the anticipated release of BTC Spot ETFs in January 2024. 

Recently, we noted the highest trade volumes in BTC call options in over a month, leading to a recovery in open interest for calls that has restored levels lost after the September expiration.

Please check out the report’s highlights.

Futures Activities Muted

Sources: Bybit, Block Scholes

Futures trading volumes have experienced significant fluctuations over the past few weeks. While activity tends to be lower on weekends, there has been a gradual decline in overall trading since the spike in late September. Despite this downward trend, the futures markets responded positively to the increased volatility at the start of October, leading to increased activity. However, open interest remains below levels seen before the September expiration, showing little movement and indicating a continued impact from that period.

BTC Perp Sees Surge in Trading Volumes

Sources: Bybit, Block Scholes

Open interest in perpetual swaps has remained stable, with BTC continuing to lead the market. This aligns with the trend in options markets, as BTC exposure remains the primary focus. Last week, we observed a notable increase in trading volumes, particularly for BTC, which corresponds with the spike in spot price volatility at the beginning of October. This reinforces the typical relationship between volatility and trading volumes, as heightened market turbulence often leads to increased trading activity across various instruments.

BTC ATM Implied Volatility Falls Sharply Since Fed Rate Cut

Sources: Bybit, Block Scholes

BTC's realized volatility has increased, while implied volatility has decreased, narrowing the gap between the two since late September. This is unusual, given the persistent U.S. election kink in the volatility term structure (now just below a 30-day tenor), as we typically expect short-tenor volatility to rise ahead of known events. 

Recently, BTC call options saw their highest trade volumes in over a month, contributing to a recovery in open interest for calls. However, they haven’t yet returned to pre-September expiration levels. 

ETH’s implied volatility has also declined across the term structure, following a similar downward trend since early September. The expected unpredictability linked to the U.S. election hasn’t materialized, which is atypical ahead of significant events like the January BTC Spot ETF decision. While open interest for call options remains elevated, it indicates cautious sentiment among traders regarding potential price movements, especially as put option trade volumes have surpassed those of calls in the past week.

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