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BTC and ETH Options Show Falling ATM Volatility but Persistent Downside Skew

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Summary

This commentary compares at-the-money implied volatility with the pricing of deep out-of-the-money options in BTC and ETH after the November 2022 market crisis. It tracks 30-day ATM implied volatility, SABR volatility of volatility, and volatility smiles. The article explains that the SABR vol-of-vol parameter captures smile steepness: higher values correspond to more expensive options in the wings relative to ATM options.

ATM volatility had receded from its crisis peak, while wing volatility and demand for downside protection remained elevated. The article interprets this as a tension in positioning: the market may be pricing another sharp decline, or it may be overpaying for protection if low delivered volatility continues. The evidence is descriptive and limited to the cited market period and model calibration. It does not resolve which scenario will occur or provide a tested strategy; implied prices indicate market pricing, not certainty about future volatility.

Key ideas

  • ATM implied volatility in BTC and ETH declined from crisis highs during the period discussed.
  • SABR volatility of volatility is used to describe the steepness of the volatility smile.
  • Elevated wing prices, particularly for OTM puts, persisted while ATM volatility eased.
  • The commentary frames the gap as either justified crash protection or an overcautious premium if realized volatility stays low.

Tags

CryptoOptionsVolatilityDerivatives pricing

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