Crypto Volatility Selling After FTX: Liquidity and Regime Risks
Summary
The commentary reviews volatility selling in Bitcoin and Ether options during 2022, when calmer price behavior and steady supply from structured products and distressed miners supported yield-seeking strategies. The authors describe a shift toward harvesting option premium rather than relying only on spot appreciation, while noting that systematic decentralized strategies face liquidity challenges against sophisticated market makers.
After FTX, withdrawals into self-custody and reduced risk-taking by larger holders and market makers may have weakened exchange liquidity. The article argues that strategies relying on stable liquidity assumptions should be reassessed, and that realized volatility could exceed implied volatility more often while trust and exchange liquidity recover. It therefore favors opportunistic volatility selling over purely systematic approaches in the short to medium term. The piece is a contemporaneous market opinion, not a backtest; its outlook depends on the behavior of structured products and miners, and is specific to the post-FTX conditions it describes.
Key ideas
- Volatility selling can generate option premium when realized price movement remains subdued relative to implied volatility.
- Systematic strategies may be vulnerable when their liquidity assumptions no longer hold.
- Post-FTX self-custody flows and market-maker deleveraging are presented as pressures on exchange liquidity.
- The authors expect more frequent negative variance premium while trust and liquidity remain impaired.
- They favor opportunistic over fully systematic volatility selling in the near term.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.