SignalPlus Volatility Column (20230721): Market Awaits Federal Reserve Signals

The number of initial jobless claims announced yesterday was 228,000, which was lower than the expected 242,000 and the previous value of 237,000, indicating that the labor market still has resilience. After the data was released, the market's expectations for the Fed to raise interest rates again after July increased, and US bond yields experienced a steep bearish trend, with the overall curve rising by 12 basis points.

The US stock market will face two important events next week: First, the Nasdaq index will undergo a rebalancing, aimed at reducing the dominant position of technology stocks. Considering that passive investors may make corresponding adjustments to their holdings, JPM estimates that the trading volume brought about by the rebalancing activity may exceed $60 billion. Second, next Friday, $2.4 trillion of US stock options will expire, and traders are eagerly awaiting corporate earnings reports and the Fed policy meeting next week to find clues to the market outlook. This year, the US stock market has withstood most of the pessimistic warnings from economic data, and the bullish sentiment is high. Traders have been buying call options to catch up. Now this sentiment has not subsided. The large amount of margin released will drive the continued rolling of call options.

Source: SignalPlus, July Hot Events

Source: Deribit (As of 16:00 UTC+8)

Cryptocurrency-wise, BTC experienced a slight drop (-1.5%) last night at UTC+8, before continuing to trade sideways below 3W. The implied volatility of major cryptocurrencies in the medium to short term continues to decline, with 23 JUL 23 reaching a low point due to its favorable Theta Hedge nature (lower liquidity on weekends can help hedge important end-of-month options Theta). Most of the trades on Deribit for this timeframe are dominated by options on the Sell Wing.

Source: SignalPlus, implied volatility continues to decline.

Today's bulk of trades are focused on the end of August and December.

Starting with futures, the largest single-leg trade for ETH is the closing of a position by buying 10,093 contracts of ETH-29 DEC 23-2300-C, achieving profit-taking on Vol. There are also a large number of 1600/2400 Long Strangle positions that continue to accumulate futures volatility at low levels, to some extent raising today's ETH dec volatility (47.08%, +0.46%). BTC also continues to see buying of Call Spreads.

In August, there are some bullish strategy trades, including the sale of 5,000 contracts of 25 AUG 23 1600/1900 Put Spreads on ETH, as well as the purchase of a 35,000/28,000 Ratio Call Spread on BTC and the purchase of an 11 AUG 23-32500-C and the sale of a 29 SEP 23-45000-C calendar spread. This may be a preemptive position building in anticipation of the upcoming LTC Halving scheduled for August 3rd, while the current intermediate front IV is still at a relatively low level.

Source: Deribit Block Trade

Source: Deribit Block Trade

You can search for SignalPlus in the Plugin Store of ChatGPT 4.0 to get real-time cryptocurrency news. If you want to receive our updates instantly, please follow our Twitter account @SignalPlus_Web3 or join our WeChat group (add assistant WeChat: chillywzq), Telegram group, and Discord community to interact and communicate with more friends.

SignalPlus Official Website: https://www.signalplus.com