Crypto Options Flows, Volatility Regimes, and DVOL Risk Premium
Summary
This Q2 2023 report teaser examines Bitcoin and Ethereum options activity, volatility behavior, and the DVOL index. It describes a rules-based method for estimating trade aggressor direction using weighted heuristics, then discusses differences in spot and implied-volatility relationships, relative realized volatility, and the effect that selling covered calls against staked Ether may have on volatility supply. The report also introduces DVOL futures and a measure comparing DVOL with at-the-money volatility to capture surface curvature.
The authors report that Bitcoin implied volatility often exceeded realized volatility and discuss short-volatility strategies, including a prior straddle-selling backtest with delta hedging. They attribute the premium in part to demand for options and limited institutional covered-call supply. These observations are specific to the period and data venues analyzed; crypto options are fragmented, and the report notes that volatility analysis remains comparatively immature. The teaser offers selected findings rather than the complete report, and its strategy discussion is not a guarantee of future profitability.
Key ideas
- A weighted set of trade-direction heuristics is used to infer option aggressor activity.
- Bitcoin and Ether showed different spot-to-volatility behavior and relative realized-volatility patterns in the period discussed.
- Selling covered calls against staked Ether may add volatility supply and affect implied volatility.
- DVOL reflects option prices across much of the volatility skew, while its comparison with at-the-money volatility can indicate surface curvature.
- The report describes a historical Bitcoin volatility risk premium and a short-volatility backtest, but its findings are period- and venue-dependent.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.