Crypto Market News: Whale Trading Activity Lowers Volatility Spread Between Ether and Bitcoin

Options contracts tied to ether (ETH) valued at $2.3 billion are approaching their expiry on popular crypto derivatives exchange Deribit this Friday. In anticipation of this crucial quarterly settlement, there is a narrow spread between Deribit’s 30-day implied volatility index for ether (ETH DVOL) and bitcoin (BTC DVOL).

Increased institutional interest in “overwriting” or selling ether call options is cited by Deribit as the reason behind the negative spread, which indicates relative stability in ether. This market dynamic sets the stage for potential significant shifts around the options expiry on Friday.

Overwriting is a popular strategy for generating additional income alongside spot market holdings. Call sellers offer protection to buyers against price rallies in exchange for a fixed compensation.

Substantial institutional Ether selling happening in 2023

Throughout this year, there has been substantial institutional selling activity in Ether call options, leading to decreased ETH implied volatility. Implied volatility (IV) reflects traders’ expectations of price turbulence and is influenced by option demand.

As the June contracts approach their settlement date, overwriters may choose to roll over their positions. This means that short positions expiring on Friday may be closed and moved to the July or September expiry. Such actions can result in significant shifts in how implied volatility is priced in the Bitcoin and ether markets.

Deribit’s Chief Risk Officer, Shaun Fernando, noted that ETH has experienced substantial institutional selling activity in call options, earning a trader the nickname of the “ETH overwriter” or ETH volatility selling whale. Consequently, the implied volatility index for ETH (DVOL) is currently lower than that of BTC.

As these substantial positions near their expiration, participants considering rolling over their positions may contribute to captivating shifts in volatility.

According to data from Amberdata, the ETH-BTC DVOL spread currently sits at -2.5, marking a three-year low. Last week, it reached a low of -7.8 before the recent rebound.