Cumberland is commenting on recent low volatility and potential opportunities to take advantage of it.
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Summary
• ETH vol looks attractive.
• Low delta puts to protect against downside surprises.
Realized vol remains depressed
• Realized vol has been extremely low and was down to low 40s/30s for BTC & ETH respectively until the slight rebound this past weekend.
• Short dated options have underperformed due to low realized volatility.
Potential opportunities to take advantage of the low vols
• ETH 1,325 straddle now priced at around $130.
• While volatility has been dampened in recent days, large price swings could still happen.
• We saw ETH moved from ~$1,800 to ~$1,300 post merge, and falling to $1,155 from $1,294 within a singled day last Thursday before rebounding.
• BTC vol for OCT 50D options now ~50, where crypto vol has historically realized higher despite recent trends.
Put buying for a rainy day
• Put/Call on short dated ETH 25D risk-reversals fell to puts being ~6% over calls, and it could be a good time to buy puts to shore up any downside risk.
• Market participants worried about downside surprises from on going war in Ukraine or unexpected hawkish comments from the Fed might consider deep OTM puts given attractive pricing.
Flows
• We saw continued call spread selling on ETH, contributing to the decrease in vol last week.
• BTC vol vs ETH vol ratio reached YTD highs last week, before subsiding to lows 80s currently, which is still at the high end of the range.
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