Bybit X Block Scholes Crypto Derivatives Analytics Report (Oct 2, 2024): Positive Sentiment Persists Following Recent Decline in Spot Prices

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 U.S. presidential election is creating a volatility premium for options expiring after Nov 5, 2024. While longer-term volatility smiles have consistently favored out-of-the-money (OTM) calls, short-term options have recently mirrored this trend. This suggests that the decline in spot prices at the end of September hasn’t significantly dampened sentiment in the derivatives markets.

• Futures: The expiration of the quarterly contract at the end of September resulted in a notable decrease in open interest, as many traders chose not to reopen their positions.

• Perpetuals: Despite the drop in open interest during the spot price fluctuations at the end of September, a positive funding rate across markets indicates underlying strength.

• Options: The U.S. presidential election remains a key focus for narratives and market positioning. Notably, ETH implied volatility is trading 10 points higher than that of BTC across various maturities, even as the realized volatility for both assets is trending downward.

Please check out some of the report’s highlights.

Futures Activities Subdued After Month-End Expiration

Sources: Bybit, Block Scholes

Spot price volatility leading up to the Sep 27, 2024 futures expiration resulted in the highest trading volumes in futures contracts in over a month. This surge was primarily focused on BTC contracts, reflecting a trend we've seen throughout much of the market's recent history. The expiration of a substantial quarterly contract at the end of September caused a decline in open interest, as not all traders opted to roll their positions into later expirations. Consequently, futures activity is currently much lower compared to that in perpetual swap markets.

Steady Perpetual Activities

Sources: Bybit, Block Scholes

While the expiration of the September contract led to a significant drop in futures open interest, the effect on perpetual swap contract markets was comparatively mild. Although we observed a decline in perpetual open interest at the end of the month, this was likely due to the closure of long positions as spot prices retreated toward the lower end of their recent range. 

This shift halts an upward trend in open interest that had been approaching all-time highs, but it doesn’t indicate a major decline — especially considering the high trading volumes recorded over the last two days of the month.

BTC ATM Implied Volatility Falls Sharply Since Fed Rate Cut

Sources: Bybit, Block Scholes

Positioning in BTC options markets continues to be heavily influenced by the U.S. election narrative. This is most evident in the term structure, which indicates significantly higher volatility expectations following the election, while short-term options are trading at much lower levels. The rise in implied volatility for these shorter tenors contrasts with the recent decline in actual volatility, which has reached lows for the month as spot prices remain relatively stable. 

Over the past week, trade volumes have mirrored this shifting sentiment, showing similar activity in both puts and calls. However, neither trade volumes nor open interest levels have surpassed recent figures, reflecting the range-bound nature of BTC spot prices, which remain influenced by broader macroeconomic factors.

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