SignalPlus Volatility Column (20230822): Wait patiently
In our last report, we mentioned that after undergoing a round of liquidation caused by falling prices, market trading volume declined rapidly, and more people chose to wait and see with a wait-and-see attitude, waiting for the next instructive trading signal to appear. Under this circumstance, Fed Chairman Powells limited-time return to the Jackson Hole on August 25 has undoubtedly become the focus of everyones attention. Everyone is looking forward to him giving important clues to the Feds next policy arrangements at the meeting, making the front-end of options hidden. Contained volatility remains high after prices stabilize.
In fact, there are two major questions that need answers in the current market. One is how high U.S. interest rates will rise, and how long high interest rates will remain. In this regard, San Francisco Fed researchers (Andrew Foerster Zinnia Martinez) wrote that according to the analysis of the dot plots for each quarter,Disagreements among Fed officials have been widening since the pandemic, even exceeding average levels through the first two quarters of 2023. Bloomberg Economics researcher Anna Wong said, “We expect Powell to heavily promote his favored risk management strategies—move slowly”. In other words, unlike Powell’s attitude last summer when he wanted to lower inflation at all costs,This Fridays speech may emphasize patience, in order to better assess the impact of interest rate policy, the FOMC needs to wait and see more.
Source: Bloomberg Federal Reserve, Fed officials are more divided than ever on the direction of interest rates
Returning to options, the most obvious change in today’s implied volatility is that the high BTC volatility has finally dropped slightly. At the front end, we can see a significant decline in BTC ETH IV.Both volatility curves have steepened, 25 dFLY has also declined. The reasons include: 1. As mentioned at the beginning of the article, analysts expect Powells speech this time to be conservative (such as remain patient, more waiting and observing), and there is reason to believe that His speech may not cause much change to the short-term market trend. Second, BTC returned to around 26,000 after the plunge,The decline in actual volatility can no longer support such a high IV, with market maker liquidity returning, the market naturally adjusted downward the volatility premium on ATM and Wing.
Source: Deribit (as of 22 Aug 16:00 UTC+ 8)
Source: SignalPlus, volatility curve steepens
Source: SignalPlus,Mid-Front Fly Falls Back
In terms of bulk trading, the largest BTC Trade was a position shifting operation based on the triangle call spread. The trader closed more than 1,500 29 SEP 23-31000-C and bought the same amount of 27 OCT 23-29000-C. Secondly, in the past 24 hours, a large number of long-term and medium-term Strangle strategies appeared in the market to express investors’ judgment on the volatility trend of the next quarter. The terms are mainly Oct and Dec, and the common feature is that most of them include 25000-P. Legs, the reason is that since June,25000, as a key technical support/resistance level and pivot point, will attract more attention from investors.. At the same time, more new positions will accumulate and change hands near this price.
Source: Binance & TradingView
Source: Deribit Block Trade
Source: Deribit Block Trade
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