The Decrease of Implied Volatility of Ethereum Options in Shanghai Upgrade due to Easter Holiday

04/09/2023 05:11 • NFT Newsflash • 131 views

According to reports, Adam, a macro researcher at Greeks Live, tweeted that despite the upcoming upgrade in Shanghai, the implied volatility IV of Ethereum options has actually experienced a significant decline, with a drop of up to 8% in the past two days. The main reason for the decline in IV is the decrease in market liquidity caused by the Easter holiday. However, at the current level of volatility, it is abnormal for monthly IV to fall to the same level as Bitcoin, and a large number of users are adding positions to short future volatility levels.

Researcher: The implied volatility of Ethereum options has significantly decreased, and a large number of users are increasing their positions to short future volatility levels

Introduction

What is Implied Volatility and Ethereum Options?

Before delving into the reasons behind the decrease of Ethereum options’ implied volatility, let us first define what implied volatility and Ethereum options means. Implied volatility is the market’s expectation of how volatile a financial asset will be in the future, while Ethereum options are contracts that give the holder the right, but not the obligation, to buy or sell Ethereum at a specified price and time.

The Significance of IV in Ethereum Options

IV plays a crucial role in the pricing of Ethereum options as it reflects the market’s expectation of the underlying asset’s volatility. A higher IV means that the market expects Ethereum’s price to fluctuate widely in the future, while a lower IV means that Ethereum’s price is expected to remain stable.

Why Did the Implied Volatility of Ethereum Options Decline?

The main reason for the decline in IV is the decrease in market liquidity caused by the Easter holiday. As the holiday approaches, traders tend to close their positions, leading to a decrease in trading volume and liquidity. With fewer traders in the market and lower trading volume, the market’s expectation of Ethereum’s future volatility decreases, resulting in a lower IV.

Abnormal Level of Volatility

At the current level of volatility, it is abnormal for monthly IV to fall to the same level as Bitcoin. Ethereum is known for its higher volatility than Bitcoin, which is reflected in its higher IV. However, due to the Easter holiday, the decrease in liquidity has led to a decline in IV, bringing monthly IV levels to the same range as Bitcoin.

Adding Positions to Short Future Volatility Levels

Despite the decrease in IV, a large number of users are adding positions to short future volatility levels. Shorting volatility means betting that the market will remain stable with little price movement. With the decrease in IV, shorting volatility has become an appealing strategy for traders.

Conclusion

In conclusion, the decrease in Ethereum options’ implied volatility is mainly caused by the decrease in market liquidity due to the Easter holiday. Although it is abnormal for monthly IV to fall to the same level as Bitcoin, traders are showing interest in shorting future volatility levels. As the holiday season comes to an end, the market’s expectation of Ethereum’s future volatility may change, leading to an increase in IV.

FAQs

Q: What is implied volatility?

A: Implied volatility is the market’s expectation of how volatile a financial asset will be in the future.

Q: What are Ethereum options?

A: Ethereum options are contracts that give the holder the right, but not the obligation, to buy or sell Ethereum at a specified price and time.

Q: What happens when the implied volatility of Ethereum options decreases?

A: The decrease of implied volatility reflects the market’s expectation of Ethereum’s future volatility, leading to a lower IV and stable market conditions.

This article and pictures are from the Internet and do not represent SipPop's position. If you infringe, please contact us to delete:https://www.sippop.com/14100.htm

It is strongly recommended that you study, review, analyze and verify the content independently, use the relevant data and content carefully, and bear all risks arising therefrom.