ETH Options Skew as a Signal of Changing Market Sentiment
Summary
This report examines how implied volatility and option smile skew changed for ETH and BTC during market selloffs in May and June 2022, followed by a July rally linked to news about Ethereum’s planned transition to proof of stake. It explains that rising at-the-money volatility reflected demand for options, while negative SABR rho indicated stronger demand for out-of-the-money puts as traders sought downside protection. ETH volatility rose more sharply than BTC’s, and ETH’s short-dated skew briefly shifted toward calls after the Merge news.
The analysis conditions ETH’s detrended one-month returns on positive 30-day rho and reports that returns exceeded their long-term trend in 87% of the observed cases. That historical association may indicate changing sentiment, but it is not presented as a guaranteed forecast. The July shift was limited: the 30-day skew had not turned positive, longer-dated ETH skew remained negative, and sentiment later leaned back toward puts. The report also suggests that liquidations of short perpetual swap positions may have amplified the rally.
Key ideas
- Negative option skew reflects greater relative demand for out-of-the-money puts and downside protection.
- ETH at-the-money implied volatility rose more than BTC’s after the May and June 2022 selloffs.
- ETH’s short-dated skew briefly shifted toward calls after news about the planned Merge.
- Historically, positive 30-day ETH skew coincided with above-trend one-month returns in most observations described.
- The observed relationship is not a guarantee, and the July change was uneven across option tenors.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.