Bitcoin Options Volatility Regimes, Term Structure, and Risk Reversal Skew
Summary
This analysis studies Bitcoin options from April 2019 through December 2022, describing how volatility pricing changed across quiet markets, rallies, sharp selloffs, and the 2022 bear market. It examines the at-the-money implied volatility term structure, comparing contango with backwardation, and measures how long backwardation episodes last. It also compares spot returns with 30-day at-the-money volatility and analyzes 25-delta call-versus-put implied volatility, known as risk reversal skew.
The reported dataset shows contango as the prevailing term structure state, while backwardation is associated with volatility shocks. The relationship between spot and volatility, and the direction of risk reversal skew, varied by year; 2022 displayed particularly negative skew and a more negative spot/volatility relationship. These are historical descriptive findings, not a tested trading strategy. The analysis covers a limited period and one asset, and its suggestion that backwardation duration may inform volatility trades does not establish predictive reliability or profitability.
Key ideas
- The analysis covers Bitcoin options volatility from April 2019 through December 2022.
- At-the-money term structure was usually in contango, while backwardation appeared during volatility shocks.
- The study uses backwardation duration as a possible input for estimating when volatility pricing may revert.
- Spot and volatility relationships shifted across years, with 2022 showing a more negative relationship.
- Risk reversal skew was strongly negative in 2022, while call and put wing pricing also changed across regimes.
- The findings are descriptive and do not demonstrate a profitable strategy.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.