Ether options’ implied volatility remains elevated, analysts say

Markets • May 7, 2024, 7:06AM EDT
Published 1 minute earlier on
The Block

Quick Take

  • Uncertainty around the future price of ether has kept its options implied volatility elevated, according to analysts.
  • Bitcoin’s implied volatility has seen a substantial reduction, indicating a trend toward stability in the bitcoin market.

Uncertainty surrounding the future price of ether is keeping the asset’s options implied volatility at a much higher level than that of bitcoin, analysts said.

In contrast, bitcoin’s implied volatility has seen a more dramatic reduction, indicating that derivatives traders perceive the bitcoin market to be trending towards stability.

Implied volatility (IV) is a measure used in the options market that represents the market’s forecast of an asset or security’s likely movement or price fluctuations in the future.

According to The Block’s data dashboard, ether’s IV has not declined to the same extent as bitcoin’s in the current post-halving market adjustment period. The bitcoin volatility index fell from 72% at the time of the halving event to a multi-month low of 55%. In contrast, the same metric for ether saw a less dramatic decline, from 76% to a current value of 65%.

Elevated ether volatility risk premium

According to this week’s Bitfinex Alpha report, options traders’ uncertainty about the medium-term price of ether is reflected in the asset’s volatility risk premium (VRP). The report outlined how the ether options market is showing a less dramatic reduction in VRP than that associated with bitcoin options.

Bitfinex analysts highlighted uncertain market conditions toward the end of the month for the second-largest digital asset by market cap, driven by the impending deadline for the U.S. Securities and Exchange Commission’s (SEC) decision on two spot ether ETFs.

"A possible reason for the ether volatility risk premium to drop less than that for bitcoin, is that the SEC’s ETF decision on May 23, 2024 acts as an additional uncertainty for the ether price," Bitfinex analysts added.

According to this week's Bitfinex Alpha report, options trader's uncertainty about the medium-term price of ether is reflected in the asset's volatility risk premium (VRP).

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Ether volatility risk premium is shown in orange, that for bitcoin is shown in red. Image: TradingView.

According to TradingView data, in the recent post-halving market adjustment period, the bitcoin volatility risk premium (VRP) came down to 8%, while ether's VRP dropped to 18%.

Ether's option risk reversal still negative

According to QCP Capital analysts, ether is not seeing the same kind of positivity among options traders as that shown for bitcoin. Ether put options are more expensive than call options, which often suggests a bearish sentiment among investors.
 
"Ether's option risk reversal is still negative at -4%, likely due to concerns about the SEC not approving the ether spot ETF deadlines for VanEck and Ark21 on 23 and 24 May," QCP Capital analysts said.
 
In contrast to this, Tuesday's QCP Capital report noted that bitcoin risk reversals have turned positive, with call options showing as more expensive than puts. This suggests that there is a bullish sentiment among investors, as they are willing to pay more for options that benefit from a rise in the price of bitcoin compared to options that protect against a decline in price.

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© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

About Author

Brian McGleenon is a UK-based markets reporter for The Block. He has worked as a financial journalist and producer for multiple news outlets over the years, such as Fuji Television, The Independent, Yahoo Finance, The Evening Standard, and The Daily Express. Brian is also a screenwriter and producer with one feature film produced and one in development with Northern Ireland Screen. Apart from web3 and cryptocurrency developments, he is also interested in geopolitics, environmental issues, artificial intelligence, and longevity research. Get in touch via email [email protected].

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