SignalPlus Volatility Column (20230801): Increasing Put Protective Option Position

Last Monday, after Minneapolis Fed President Kashkari's optimistic view on US inflation, Chicago Fed President Evans, seen as more dovish and with voting rights, said in an interview with foreign media that the Fed has done a good job in slowing inflation and a soft landing is definitely possible, but he currently has no conclusion on the policy for September. He said, "We will get more important data before the next meeting. But it looks like we're making good progress on this path."

Source: SignalPlus, important economic events in the US this week

Compared to the thriving US macro economy, the digital market has been hit by several news.

In mid-July, Ripple was ruled by US District Judge Torres in the Southern District of New York as "not a security," providing the community with a momentary celebration. However, Judge Rakoff, who is currently responsible for overseeing the SEC's lawsuit against Terraform and its founder Do Kwon, expressed his refusal to the previous ruling that Ripple is not a security. The SEC also urged other judges not to adopt Torres' judgment and is considering appealing the ruling in the Ripple case.

The decentralized exchange Curve Finance on Ethereum was attacked by hackers due to a "reentrancy bug" in the Vyper language, resulting in total losses of over $50 million. Other related Defi protocols have also been severely affected, causing a crash in many Defi tokens, including CRV.

Source: Binance, CRV Price Changes

Note that the liquidity of the CRV/ETH pool is almost depleted, and if positions are liquidated, bad debts are almost inevitable. Due to the token's significant price fluctuations and other potential unknown factors, many people recommend withdrawing liquidity from Curve at this time, which may exacerbate the vicious cycle of price instability.

Under the impact of DeFi, both BTC/ETH and CRV prices have experienced a slight decline. ETH's short-term volatility, which is more closely related to CRV, has increased rapidly, and the RR has plummeted all the way. The 24-hour trading volume has multiplied by 5 compared to the previous day, and the P/C Ratio has reached an unusual 1.36. The current IV for the 4 AUG 23 term has a higher Vol Premium compared to adjacent terms, but this may be just a temporary protective measure due to the good liquidity of the cycle options taken for the CRV event. In the afternoon, the CRV price has rebounded, indicating that market sentiment is calming down. Compared to the short-term volatility caused by the program vulnerability, the market may need to consider whether the capital outflow/withdrawal will have a longer-term or even destructive impact on the future prospects of DeFi. In addition, important US economic data will also be released on Friday evening after the settlement on 4 Aug 23, and this term itself does not include this value. At this time, the calendar spread Short 4 AUG 23 Buy 11 AUG 23/18 AUG 23 Wing begins to enter the investors' horizon.

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

Source: SignalPlus

Source: SignalPlus, ETH 25 dRR plummeted

Source: Laevitas, intra-day trading volume and P/C Ratio rose rapidly

In the past 24 hours, the most significant increase in the number of put options for ETH indicates that both institutions and retail investors have been establishing protection positions near the ATM level in the short term. These positions mainly include the 1850/1800/1750-P options for the August 4th expiration, as well as the 1800 vs 1600 Long Ratio Put Spread for the end of August with a 5000:2500 ratio. These trades largely explain the sharp increase in front-end IV and the waterfall-like drop in 25-day realized correlation (dRR) seen in ETH today. On the other hand, BTC's institutional trading has not been threatened by CRV, and traders are still building risky positions in a market with lower far-end IV and RR. Top trades include a 27000/33000 RR for the September 29th expiration with 1000 BTC, as well as a 20000/40000 RR for the December 29th expiration with 300 BTC.

Source: Laevitas

Source: Laevitas

Source: Deribit Block Trade

You can search for SignalPlus in the ChatGPT 4.0 Plugin Store to get real-time encrypted information. If you want to receive our updates instantly, please follow our Twitter account @SignalPlus_Web 3, 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