Bitcoin Volatility Regimes and the Reversal in Options Skew

Summary

This analysis explains how Bitcoin’s realized volatility rose in brief spikes during sharp price selloffs in 2022, while long stretches of sideways trading kept volatility subdued. It describes the effect of a rolling 14-day estimate: one large daily return can lift the measure, which remains elevated until that observation leaves the window. Recent rallies followed an extended quiet period, and short-dated implied volatility rose more than longer-dated volatility, a pattern the author says may reflect expectations of renewed inactivity.

The article then examines the reversal from a persistent out-of-the-money put skew toward a call skew after Bitcoin’s rallies. It uses the SABR rho parameter to describe the relationship between spot and implied volatility and the relative pricing of calls and puts. Comparing the current skew term structure with early 2021, it finds short-term call preference but longer-term put preference. These measures reflect option pricing, not certain forecasts; the analysis does not establish that the earlier market pattern will repeat.

Key ideas

• Large spot moves can create temporary spikes in rolling realized volatility that fade as the moves leave the lookback window.
• The article describes a regime of quiet periods interrupted by sharp moves in either direction.
• Short-dated implied volatility was relatively elevated after the rallies, while longer tenors were lower.
• Bitcoin’s options skew shifted toward out-of-the-money calls after rallies, but longer-dated skew still favored puts.
• SABR rho summarizes skew characteristics but does not guarantee a future price direction.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.