[Deribit] Option Flow – Week 28, 2022

In this week’s edition of Option Flows, Tony Stewart is commenting on light volumes and the waiting CPI.

July 12

Reversal as upside Spot capped by ongoing concerns re continuing liquidations, and even upcoming Mt Gox supply entering the narrative. <20k/1.1k Opportunistic Option Funds + Fast money bought up soft wknd IV, and Put Skew, but in general, volumes have been light. Awaiting CPI.

2) Buying Risk-reversals (buying Put, funded by Call) has been a theme, with Put Skew having weakened, the opportunity came to add downside protection.

Mainly short-dated+tight Strikes: July 19-22k, Aug 18-23k RRs.

Put Skew firming up as a consequence.

3) Opportunities to take advantage of beaten-up IV, the result of DOVs, Strangle sellers, and weekend Theta were very present and absorbed by August straddles, July+Sep Puts, and also July ATM-OTM Put spreads.

IV firming up as a consequence.

4) Global risk markets now looking towards the US CPI numbers, plus FED speakers to inform and suggest future severity of rate moves.
Also, very much in the foreground, now concerns over FX intervention as currencies test international policy.
Contango to flat as gamma in demand.

View Twitter thread.

July 14

July29 ATM Straddle buyer swept Gamma just before the CPI print, anticipating something big.

9.1%. Causing forward rates to rise to battle inflation, sending BTC <19k, ETH 1k.

IVs marked higher, but positioning prevented surge.

Jul29 18k Puts rolled to Aug 15k. Skew firmed.

2) Prior to CPI, the term structure was in backwardation, as demand for Gamma from the Straddle, plus Jul15-22k Options (Skewed more to Calls) lifted the near-dates.
Holder of Jul29 18k Puts took advantage, rolling to Aug 15k Put.
Note Aug 15k Put also aggressively bought on CME.

3) The sale of Jul29 18k Put and additional unwinds of Gamma, immediately hit the front end, often the scenario after an awaited event.
But with BTC falling <19k, then rallying to 20.4k, there is an underlying bid for Gamma in Jul29-Aug maturities.
Term-structure returns to flat.

4) IVs drifted lower from the pre-CPI bid and currently sit mid-range over the last week.

Eyes now look toward how Global Risk markets continue to digest forward-looking inflation and corporate data, along with the ongoing Crypto situation as Celsius declares Ch11 – latest news.

View Twitter thread.

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