Reading Crypto Options Skew with Risk Reversals and Butterflies

Summary

This article explains how to read implied-volatility skew in cryptocurrency options using the 25-delta risk reversal and butterfly. Risk reversal compares call and put implied volatility at matching deltas to show which side of the market is more bid; the butterfly compares the wings with at-the-money volatility to describe relative demand for tail protection. It argues that participant flows can help explain why equity index options have tended toward negative skew while crypto options have often shown positive skew.

The article illustrates its interpretation with dated BTC and ETH readings, tenor comparisons, and percentile ranks over a trailing period. It stresses that a current skew level should be read alongside its recent distribution and term structure, and discusses ETH skew as a possible early signal of changes in BTC skew. These observations are descriptive market analysis, not a tested trading strategy. The excerpt provides no systematic performance test, and its flow explanations and signal interpretations may not hold across regimes or data sources.

Key ideas

• A 25-delta risk reversal compares call and put implied volatility to indicate directional skew.\nA 25-delta butterfly measures wing volatility relative to at-the-money volatility.\nThe article links opposite structural skew patterns in equities and crypto to different participant flows.\nPercentile context and term structure can change how a current skew reading is interpreted.\nThe examples are descriptive and do not establish a profitable trading rule.

Tags

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