The impact of Ethereum price recovery on its options market
Options markets allow traders to gain exposure to changes in the underlying prices of bitcoin and ether, but bitcoin and ether prices are not the only drivers of option value.
Options are one-way bets with a fixed expiration date, which result in a set of "Greeks" variables that affect the value of the option.
Despite all the "Greeks" we have, it's supply and demand that really determine option prices. The way this supply and demand effect is reflected in option prices is through implied volatility (IV), the only variable determined by the market. Because implied volatilities are determined by the market and compared directly to options at different strike prices and maturities, traders often study implied volatilities to find relatively cheap and expensive options. Realized Volatility is the actual price volatility displayed by Bitcoin or Ether. Since options are one-way bets, more volatile assets should have more expensive options as such assets have a higher probability of becoming deep in the money (ITM). image description At-the-Money Implied Volatility Chart for ETH September 25, 2020 Expiration Options As shown above, while implied volatilities have risen sharply, not all option implied volatilities have been affected in the same proportion. This disproportion is particularly pronounced when market participants display a strong bias, such as anticipating a sharp and sustained rally. image description Skew Chart for Ether September 25, 2020 Expiration Options image description Ethereum September 25, 2020 expiration 880 call option position chart image description Implied Volatility Trader Profile Chart for Ether Expiry September 25, 2020 880 Call Options Combining all of these factors, traders can understand the current level of volatility and determine which levels are worth participating in. Options offer a lot of flexibility to traders. Statistical edges can be isolated by using multiple options simultaneously by combining cheap and expensive options into a multi-leg position.
