Reading Bitcoin Options Skew, Volatility Term Structure, and Vol of Vol
Summary
The report interprets Deribit BTC options data from 2022 to describe changing expectations after the UST depeg and subsequent crypto credit stress. It explains how an implied volatility surface compares options across delta and expiry, and uses put-call skew and the SABR rho parameter to track the market’s relative pricing of out-of-the-money puts and calls. The cited snapshots show expensive downside protection, especially at short expiries, with put skew also elevated at longer tenors. The article further discusses ATM implied volatility and the SABR alpha parameter as indicators of volatility level and smile-wing steepness.
The report’s central interpretation is that near-term volatility was priced above longer-term volatility even as traders continued to pay for longer-dated puts. It reads this combination as fear of sharp selloffs alongside uncertainty about how long the volatile regime might persist. The evidence consists of market snapshots and parameter time series, not a predictive test or trade evaluation. These option-implied measures describe pricing and risk premia; they do not establish that a selloff will occur or that implied volatility forecasts realized volatility accurately.
Key ideas
- An implied volatility surface displays option volatility across strike or delta and expiry.
- Negative SABR rho reflects relatively richer out-of-the-money puts and stronger downside skew.
- The report links market stress to higher ATM implied volatility and persistent demand for put protection.
- An inverted ATM volatility term structure coexisted with elevated longer-dated put skew.
- Higher SABR alpha was interpreted as greater uncertainty about the shape of future volatility smiles.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.