Bybit X Block Scholes Crypto Derivatives Analytics Report (Jan 2, 2025): BTC Options Continue to See Call-Put Parity, With Lower Short-Term Volatility Expected

Key Highlights:

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

December's end-of-year options expiration brought an unexpected drop as realized volatility fell to the lowest levels of the month. Perpetual swap open interest remained stable, indicating these markets weren't heavily used for hedging against expired options, likely contributing to the muted volatility. 

While most expired open interest in Bitcoin (BTC) and Ethereum (ETH) hasn't been reinvested, the balance of calls and puts remains consistent. Notably, ETH options are pricing in higher implied volatility as compared to BTC, particularly for shorter expirations, leading to a flat term structure for ETH, while BTC is offering cheaper options exposure.

In the perpetual markets, low volatility and minimal spot movements have led funding rates for nearly all tokens to mirror broader market sentiment throughout the holiday season. On the options side, BTC's term structure is noticeably lower and steeper than ETH's, with realized volatility now dipping below implied volatility levels, highlighting an intriguing shift in market dynamics.

Please check out the report’s highlights.

Open Interest Solid Amid Year-End Options Expiration

Although open interest for both BTC and ETH perpetual swaps hasn’t returned to early December 2024 highs, it remained robust throughout the significant end-of-year options expiration event. This suggests that these markets weren’t heavily utilized to hedge the delta of the expiring options contracts, likely contributing to the lack of volatility observed during this period. Instead, trading volumes have dipped noticeably during the winter holiday season, coinciding with a collapse in realized volatility back to December 2024’s lowest levels.

BTC Option Curve Remains Steep During Call-Put Parity

The expiration of December's end-of-year options didn’t trigger the anticipated surge in volatility; instead, realized volatility has plummeted to the lower end of its recent range. The implied volatility term structure remains steep compared to both its recent behavior and ETH's, with longer-dated implied volatility around 57%, and 1-week at-the-money options trading about five points lower. Much of the expired open interest hasn’t yet been rolled into new positions, maintaining a neutral balance between puts and calls. Consequently, BTC's options market positioning is relatively neutral, lacking the leverage it had at the start of December 2024.

Huge ETH Option Expiring Doesn’t Cause Volatility

A late December spike in realized volatility didn’t carry into the new year, with ETH’s spot price currently exhibiting volatility below that of short-tenor implied volatility. Interestingly, the implied volatility term structure has undergone a steepening and re-flattening over the past week, contrasting with BTC’s slightly steeper profile. This suggests that ETH’s options market is anticipating higher short-term volatility in spot price movements. 

Despite the significant expiration of options open interest at the end of December 2024, which didn’t lead to a rollover into later expirations, call options continue to dominate the market and have increased at the start of 2025.

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