Using SABR Parameters to Compare BTC and ETH Volatility Smiles
Summary
This commentary explains two SABR calibration parameters as tools for interpreting BTC and ETH option smiles. Volatility of volatility describes how strongly the smile steepens, raising the relative price of options far out of the money compared with at-the-money options. Rho represents the relationship between the underlying and implied volatility in the model and helps determine whether the smile favors out-of-the-money puts or calls.
The reported 30-day observations show both assets’ smiles near their steepest year-to-date levels after FTX-related uncertainty, with a brief divergence in volatility of volatility that partially narrowed. The article says ETH’s wings then implied slightly less premium than BTC’s, while both smiles continued to price a substantial premium for out-of-the-money puts. These are model-based readings of a specific historical period, not a forecast or a trading rule; the piece offers no backtest or evidence that the parameters alone predict returns.
Key ideas
- SABR volatility of volatility describes the steepness of the modeled option smile and relative wing pricing.
- SABR rho captures the modeled relationship between the underlying and implied volatility and influences skew direction.
- BTC and ETH smile parameters moved similarly during FTX-related stress, with a temporary divergence.
- Both assets continued to show put demand, although their relative wing premiums differed.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.