SignalPlus Volatility Column (20230710): Volatility Slows Down, Awaiting Macro Events Impact.
Last Friday, the US released non-farm payroll data that fell short of expectations (announced 209,000, expected 230,000), raising doubts in the market about the trajectory of rate hikes by the Federal Reserve in the second half of the year. The 10-year US Treasury yields gave back the gains from yesterday, dropping 7 basis points in the short term. However, more in-depth analysis of the data showed an increase in weekly working hours and a third consecutive month-on-month increase in hourly wages, leading to a V-shaped reversal in the 10-year yields during the trading session, ultimately closing at 4.066%. The overall US Treasury yield curve experienced a more pronounced bearish steepening, the most significant change in over a year. Chicago Fed President Charles Evans said there could be 1-2 more rate hikes this year, but he has not yet reached a conclusion on what policy rates the Fed should adopt in July and still wants to see inflation data before making a decision.
This week, the focus will be on the speeches of two hawkish Fed officials on Monday and Tuesday, as well as the release of June CPI data in the US on Wednesday. Although the recent correlation between BTC/ETH and the US session has decreased, the CPI data still has some impact on cryptocurrency prices, so Wednesday evening will be an important trading time.
Over the weekend, BTC remained above 30,000, while ETH oscillated around 1,860. Option implied volatility reached a low point during the weekend, but with the arrival of the workweek and expectations for macro events this week, the front-end IV of BTC/ETH rebounded from the low point, with the volatility of the cycle options increasing by 2.57% and 4.8% respectively. The 2m/3m IV is still in a downward trend, but the decline has slowed down. The end-of-quarter (29th of September to 23rd of September) BTC/ETH ATM IV decreased to 34.05% (-0.67%) and 43.77% (-1.01%).
The trading volume of the entire market remains low, with most of the bulk strategic trades being Trade Volatility. For BTC/ETH, the main strategies are Long Straddle/Strangle, focusing on bullish volatility strategies with positions taken on medium to long-term options starting from the end of July (28 Jul 23, 25 Aug 23, 29 Sep 23). On one hand, there is still a lot of uncertainty in the macro news, including the direction of Binance's response to regulations and the success or failure of TradFi's application for a Bitcoin ETF. On the other hand, BTC has been trading sideways since breaking through 30000, and many people are willing to buy and hold positions while IV is still cheap in order to prepare for the next unexpected turbulence.
Source: Deribit (as of 16:00)
Source: SignalPlus, front-end volatility rebounds from its low point
Source: SignalPlus, Skew returns to the negative range
Source: Deribit Block Trade
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