Two Pathways Of Opportunity

@Sakura please summarize this article, thanks uwu.

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Reading https://espresso.jlabsdigital.com/two-paths-of-opportunity/

TLDR :star2:

The article discusses the opportunities and potential paths for Ethereum (ETH) options trading, based on the changes in the implied volatility (IV) term structure.

Key Points :dizzy:

  • The IV term structure chart shows the options market’s expectations of future volatility on ETH.
  • The front-end of the IV curve (June and July options) has dropped 10 points, while the backend has remained elevated.
  • This divergence in IV between the front-end and backend creates potential trading opportunities.
  • Two possible scenarios are discussed: 1) A volatility event that sends ETH to new highs, or 2) Price stagnation and retreat towards $3,500.

In-depth Summary :memo:

The article focuses on the changes in the ETH options market, particularly the IV term structure. The author explains that the IV term structure chart represents the options market’s expectations of future volatility on ETH. When IV is low, options premiums are also low, and vice versa.

Over the past week, the author has observed a notable change in the IV term structure. The front-end of the curve, representing options for the summer months (June and July), has dropped 10 points, while the backend has remained elevated. This divergence is attributed to the market positioning itself for future upside after the recent ETF approval news, by buying longer-dated call options and shorting nearer-dated calls as a hedge.

The author then discusses two possible scenarios that could play out in the coming weeks and months. The first scenario is a volatility event that sends ETH to new all-time highs, which would likely lead to another spike in IV and an inversion on the nearer-dated expiries, similar to what happened after the Grayscale case in October 2023. The alternative scenario is price stagnation and retreat towards $3,500, which would cause IV for longer-dated contracts to plummet and IV for the summer months to drop below 50.

The author emphasizes that in either event, the shape of the IV term structure will change, and this change will be accompanied by shifts in the contract premiums associated with different expiration dates. The author encourages readers to be mindful of these changes and be prepared to take advantage of the opportunities that arise.

ELI5 :hugs:

The article is about the options market for Ethereum (ETH). It talks about how the prices of options contracts can change based on how much people expect the price of ETH to move in the future. Right now, the options market is showing that people expect more price movement in the longer-term (later this year) compared to the shorter-term (this summer). This creates two possible scenarios: 1) ETH could suddenly shoot up to new highs, which would make the shorter-term options more expensive, or 2) ETH could stay around the same price, which would make the longer-term options cheaper. The author is saying that traders should watch for these changes in the options market, because they can create opportunities to make money.

Writer’s Main Point :bulb:

The main point of the article is to highlight the potential trading opportunities that can arise from the changes in the ETH options market’s implied volatility (IV) term structure. The author emphasizes the importance of being able to “rotate the shape” of the IV curve and understand how it can shift in response to different market scenarios, in order to identify and capitalize on these opportunities.

Relevant Links :link:

  • Coincall - A platform mentioned in the article that allows users to view changes in options premiums over time.