Year-End Crypto Options: Falling Realized Volatility and Persistent Premium
Summary
This year-end market note reviews Bitcoin and Ether volatility conditions around December 31, 2022. It describes unusually quiet Bitcoin trading, a sharp decline in seven-day realized volatility, and Deribit’s volatility index closing near its annual low. Short-dated implied volatility fell, while longer maturities and option wings kept the overall volatility index elevated. The report highlights a wide gap between seven-day and thirty-day implied volatility, temporary normalization in short-dated risk reversal skew, and a persistent implied-versus-realized volatility premium as realized volatility declined faster than implied volatility.
A separate weekly section covers Squeeth activity, including low implied volatility, trading volume in an oSQTH/ETH pool, and reported weekly results for two named strategies. These are descriptive observations rather than a controlled performance study. The note anticipates a possible pickup in realized volatility early in the new year but says this may not quickly eliminate the volatility risk premium. It offers no formal forecast model, trade entry rules, or risk-adjusted evaluation, and its snapshots reflect the dated market conditions described.
Key ideas
- The note reports that Bitcoin’s short-term realized volatility fell during a quiet holiday period.
- Short-dated implied volatility declined while term structure and wing premiums remained elevated.
- The report describes a persistent gap between implied and realized volatility in short expiries.
- Short-term risk reversal skew briefly approached parity as crash-risk pricing eased.
- The Squeeth section provides activity and strategy snapshots without a controlled performance analysis.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.