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Using ETH Volatility Skew to Track Shapella Upgrade Positioning

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Summary

The analysis compares BTC and ETH option volatility skew ahead of Ethereum’s Shapella upgrade, scheduled for April 12, 2023. Both assets’ volatility smiles favored out-of-the-money puts, while ETH generally showed a stronger preference for downside protection except at one-to-three-month tenors. The article uses the term structure of the SABR rho parameter to describe how that skew varies by maturity. It explains that rho reflects the modeled relationship between the underlying asset and implied volatility and helps indicate relative preference for put or call protection.

Comparisons of snapshots from April 4 and April 11 show an ETH skew kink shifting across maturities. The authors interpret this movement, alongside reduced short-tenor skew levels and slightly lower outright volatility, as consistent with positioning around the upgrade and greater confidence in its timing. The shortest-dated smiles moved away from downside protection, while other maturities retained some put preference. These are market-based interpretations from a small number of snapshots; the document does not establish that upgrade positioning caused the changes or show how the signal performed afterward.

Key ideas

  • BTC and ETH volatility smiles both favored out-of-the-money puts in the reported snapshots.
  • ETH generally showed stronger downside skew than BTC, with an exception at one-to-three-month maturities.
  • The SABR rho term structure is used to compare skew across option expiries.
  • The authors interpret a shifting ETH skew kink as possible positioning around the Shapella upgrade.
  • Snapshot comparisons suggest reduced short-tenor downside preference, but do not prove its cause or predictive value.

Tags

CryptoOptionsVolatilityDerivatives pricing

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