June 24 was an important day for the cryptocurrency market. On the first delivery day after the bear market began, more than 100,000 BTC options and more than 1.1 million ETH options were issued. In the futures and options markets, new quarterly agreements were also set up at the same time. Given that the local market for cryptocurrencies and the market for its derivatives are linked, the importance of this deposit can be called “unusual” when the cryptocurrency market has gone through two shocks in a row.
In general, during a half-year delivery, the final delivery price should be close to the “maximum value of pain points”, which affects how well the long and short sides play their part. But the number of shocks and the fact that interest rates continued to rise in May and June had a major impact on the cryptocurrency market. Even though the negative attitude in the short term has made the maximum pain threshold of this birth a little lower, the actual delivery price is still far from the maximum pain threshold.
This happened because investors in the spot market sold a lot and closed their position. When investors in the spot market sell rapidly, the effect of the derivatives market on the spot price decreases. This is another example of how “limited” liquidity is in the cryptocurrency market.
On June 24, about 31.9 percent of all BTC options that were openly delivered were delivered. This was slightly less than at the same time last year. This information was based on the number of open contracts and the number of deliveries (35.9 percent). However, the total number of contracts (88,153) was much higher than in the previous year.
On the other hand, the delivery volume of ETH options is only about 28.7% of all open interest in options contracts. This is a decrease from 39.2% last year. Despite this, the delivery scale is 1.6 times higher than a year ago.
It is important to know that open interest in ETH options has grown significantly since last year, more than doubling to more than 3.3 million contracts. Given the current sluggish market for cryptocurrencies, changes in the ETH options market could have a major impact on ETH prices.
If you look at changes in gamma exposure, you can see that changes in the ETH options market are already having some effect on ETH prices. To some extent, the increase in gamma exposure to wild selling in the instant market slowed down. One way to increase positive gamma risk rapidly is when a lot of stock options are bought and sold.
Before and after the cryptocurrency date, there were a number of stock option purchase records in the ETH Option Trading Order Flow, especially in the Block Transaction Order Flow. For many days in a row, the number of purchased contracts was more than 100,000 per day. This caused the call / call rate to exceed 0.8 at one point in time.
To limit their risk, market makers who buy a lot of stock options have to buy temporary or long-term futures. The long-term behavior of market makers and retailers eventually caused the price of ETH to level off.
As the cryptocurrency market has stabilized after delivery, the mood in the market as a whole has improved to some extent. Prior to delivery, the premium on BTC and ETH futures contracts with a delivery date of 2023q1 was close to 0.6 percentage points, or the spot price. But after delivery, as the market improved, the premium for BTC and ETH futures rose to more than 1 percent. But compared to what it was before, the current premium amount is still very low.
This delivery did not reduce the cryptocurrency market’s medium to long-term risk aversion in terms of volatility. Following the shocks of May and June, the indirect volatility of both BTC and ETH options showed a sharp increase and reversal. This pattern did not change much after delivery was complete.
After extensive delivery, short-term fluctuations should generally be less than long-term fluctuations. But this time, the fluctuation pattern on the surface is still going on because people are still afraid to take risks before and after birth.
The error data also showed how the market reacted before and after delivery. Even though the short-term market has become more positive and almost neutral after the delivery date, the medium- and long-term markets are still very negative and put options continue to trade at a significant premium than stock options. The situation makes people sad all of July.
The concept of option structure also supports the idea that people should avoid taking risks. Options ending in July still have a high Forward IV after the delivery date, so you have to think about the possibility of more fluctuations in July. The central bank’s decision on interest rates in July and the European Central Bank’s plan to raise interest rates are still putting a lot of pressure on the cryptocurrency market.
In short, the cryptocurrency market can be weak in the short term. Most investors are cautious and it is difficult for the national data to support the recovery of cryptocurrencies. But in the short term, long-distance volatility seems to be the best way to go. After delivery, cryptocurrency markets tend to have short periods with small fluctuations. However, due to the liquidity crisis, the effects of the shocks could increase market fluctuations significantly, as changes in the macroeconomic environment in July will offer significant potential benefits to volatility.
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