SignalPlus Volatility Column (20230724): Poor trading volume, market continues to bet on August call options.

After the "hawkish pause" from the Federal Reserve last month, the market has fully digested the expectation of a 25 basis point interest rate hike by the FOMC. The biggest question for policymakers and the financial markets has now shifted to what will happen next? Is this interest rate hike the end of this tightening cycle? Despite the recent slowdown in inflation and increasing probability of an economic "soft landing," the core inflation rate is still far from reaching the Fed's target of 2%, and the job market remains tight. The focus will be more on the accompanying policy statement to look for signals of further interest rate increases.

Source: SignalPlus, US hot events this week

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

On the cryptocurrency front, Bitcoin saw a slight increase over the weekend but gave back all its gains today, falling below 30,000. Implied volatility in options has experienced a slight rebound from its weekend low, but overall levels remain relatively low (below the 25th percentile in the past 3 months).

BTC 28 JU L 2 3 The curve near the vicinity is relatively gentle, reflecting that the market has almost priced in the most important FOMC meeting decision this week (25 bp rate hike). In fact, Deribit users have also sold a large number of Call and Put near the ATM strike on this expiry, causing it to lose its Vol Premium for the near term. Similarly, on the same term, due to liquidity differences, the selling pressure of ETH is not as strong as that of BTC, at this time, the ATM IV is at 36.79% (+2.12%), slightly higher than BTC at 33.62% (+1.35%).

Source: SignalPlus

The overall liquidity of the weekend is still relatively low, with trading volume only about 40% of the usual.

Statistically, the most obvious change is that the P/C Ratio of BTC has reached a recent peak of 0.7. Specifically, this is mainly composed of users buying a large number of Put near the ATM strike at the end of August and simultaneously selling Put on Wing, creating a Bear Put Spread.

Next is the market betting on key bullish levels in early August (4 AUG, 11 AUG), such as BTC 31000, ETH 1950, where a large number of bullish options can be seen.

Source: Laevitas

The bulk side is not as active as usual, with relatively small trading volume. BTC has seen the Long 31000-C  Calendar strategy for short-term volatility at 184.5 with a quantity of 4 bought in August and 28 sold in July. ETH also has a quantity of 400 selling the 28 JUL L 2 3 1850/1900 Strangle.

Source: Deribit Block Trade

Source: Deribit Block Trade

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