How an ETH Rally Changes Implied Volatility and Options Skew

Summary

This article describes how a sharp rise in ETH and BTC prices can affect realized volatility, implied volatility, and demand across option strikes. It explains implied volatility as a market-priced quantity that traders can compare across strikes and expirations, while realized volatility reflects observed movement in the underlying asset. The article uses ETH options expiring September 25, 2020, as its main example.

It compares implied volatility for roughly 25-delta out-of-the-money calls and puts, reporting that call volatility was about 15 points higher, which it attributes to stronger call demand. It also points to a surge in open interest for the far out-of-the-money 880 call and recommends examining an implied-volatility trading profile to understand recent traded levels. The article proposes combining these observations to assess a move and consider multi-leg positions that pair relatively cheap and expensive options. The charts are referenced but not reproduced in the text, and the discussion is a snapshot of one historical market episode, not evidence that the same pattern predicts future returns.

Key ideas

• Implied volatility reflects market pricing and can be compared across option strikes and expirations.
• The article distinguishes implied volatility from realized volatility in the underlying asset.
• In the cited ETH expiry, out-of-the-money calls had higher implied volatility than similar-delta puts.
• Open interest and traded implied-volatility profiles can add context to skew observations.
• Multi-leg positions may combine options assessed as relatively cheap and expensive.

Tags

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