Reading BTC Implied Volatility, Realised Volatility, and Put Skew
Summary
This analysis examines Bitcoin options metrics during a period when spot traded mostly between $38,000 and $48,000 in 2022. It compares implied volatility with realised volatility and describes how their relationship changed: implied volatility fell toward lows as realised volatility also declined, after earlier periods when implied volatility reacted slowly to sharp moves in realised volatility. The article cautions that implied volatility reflects multiple influences, so realised volatility alone cannot explain its movements.
It also explains the 25-delta put-call ratio: put implied volatility divided by call implied volatility at comparable distances from the money. A reading above 100% indicates puts carry a premium. The article reports that this ratio remained above 100%, with puts more than 5% richer than calls, even as overall implied volatility fell. It discusses dealer hedging and reduced spot trading as possible contributors to subdued price action, while leaving the source of put demand unresolved. Low trading volume, especially at strikes below $20,000, may exaggerate the skew. The analysis is descriptive and proposes competing interpretations rather than a verified forecast.
Key ideas
- Implied volatility can lag sharp changes in realised volatility and is influenced by factors beyond spot volatility.
- A 25-delta put-call ratio above 100% indicates higher implied volatility for puts than comparable calls.
- The article describes falling overall implied volatility alongside an unusually rich premium for downside puts.
- Dealer hedging in response to short option positions is offered as a possible source of mean-reverting pressure.
- Low trade volumes may exaggerate the apparent richness of deep out-of-the-money puts.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.