Bitcoin and Ether Volatility Premia and Steep Option Smiles
Summary
This September 2023 review compares Bitcoin and Ether implied and realised volatility, their volatility premia, and the shape of their options smiles. It reports that ATM implied volatility stayed within a range while realised volatility fell to historically low levels, bringing the two assets’ realised volatility closer together. Bitcoin options continued to imply higher volatility than Ether options, while both markets priced implied volatility well above recent realised volatility by historical standards.
The review also examines steep volatility smiles, using a SABR volatility of volatility parameter as a measure of how richly out-of-the-money options are priced relative to ATM options. It describes both assets’ one-month smiles as near the upper end of their historical ranges. The analysis relies on market data and historical comparisons; it reports conditions rather than testing a trading strategy or establishing causes. Its outlook is uncertain, and the observed premiums and smile steepness do not guarantee future volatility or returns.
Key ideas
- Bitcoin and Ether realised volatility converged as both fell to historically low levels.
- Implied volatility remained range-bound and rose relative to recent realised volatility.
- Bitcoin options maintained higher implied volatility than Ether options, though relative premiums were consistent with historical patterns.
- Both assets showed historically steep volatility smiles, especially at the one-month tenor.
- The review presents market observations and historical comparisons, not a tested forecast or trading strategy.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.