Research Summary
The report by Tony Stewart discusses the recent volatility in the cryptocurrency market, particularly focusing on Bitcoin (BTC) and Ethereum (ETH). It highlights the market movements, option flows, and the impact of these on the overall market sentiment.
Key Takeaways
Market Volatility and Option Flows
- Return of High Volatility: After two months of steady growth, the cryptocurrency market experienced a sudden flush, with Bitcoin hitting an all-time high before a sharp drop. This volatility led to a shift in option flows, with some players flipping their positions.
- Option Trades Before the Flush: Prior to the market drop, there were significant option trades, including the purchase of BTC Mar15 69k Puts and ETH 3.4k Puts, and the selling of BTC Mar29 70k+Jun75k Calls and ETH Mar29 4.5+5k Calls.
Market Reactions and Movements
- Market Reactions to the Flush: As the market descended, there was a mix of flows, with some panic buying of Puts near the lows. However, the large BTC Call longs remained engaged, indicating continued commitment to the market.
- Market Bounce: The market experienced a significant bounce from the Spot lows after the US close, with BTC ranging from 69.2 to 59.3, then back up to 67.7. This movement was met with calm from BTC Option Funds, suggesting a level of resilience in the market.
Skew and Volatility
- Skew Looks Messy: The report notes that the Skew looks messy, still biased to the Calls. The Spot moves over the last couple of days did not impact the mid- long term structure, but the shorter-dated (7day) Skew showed the MMs less keen to sell Puts, and Option Fast-money relaxation for Call demand.
- Impact of Volatility on Books: The day’s volatility wiped $1bn off books via derivative liquidations. The report suggests that Implied Volatility (IV) is likely to remain firm if these markets continue to move as they are, and market participants wise up to using Options over highly leveraged perps.
Actionable Insights
- Understanding Market Volatility: The recent market volatility highlights the importance of understanding and monitoring market movements and option flows. Investors should keep a close eye on these factors to make informed decisions.
- Importance of Risk Management: The report underscores the importance of risk management in volatile markets. The purchase of the Mar29 2k Put by ETH holders, for instance, could be seen as a risk management strategy. Investors should consider similar strategies to mitigate potential losses.
- Consideration of Options Over Highly Leveraged Perps: Given the volatility and the impact on books, the report suggests that market participants may start using Options over highly leveraged perps. This could be a strategy to consider for those looking to navigate the current market conditions.
