Definition

Skew is the relative richness of put vs. call options, expressed in terms of Implied Volatility (IV). For options with a specific expiry, 25 Delta Skew refers to puts with a delta of -25% and calls with a delta of 25% to demonstrate this difference in the market’s perception of implied volatility.

25 Delta Skew is calculated as the difference between a 25-delta put’s implied volatility and a 25-delta call’s implied volatility — normalized by the ATM Implied Volatility.

While Implied Volatility is the market’s expectation of volatility.

Quick Take

Options 25 Delta Skew suggests puts are more expensive than calls — indicating bearish sentiment ahead of the CPI announcement today.
For the past two years, each time calls become more expensive than puts highlighted in the black box, Bitcoin has a rally in price — potentially indicating a bear market rally.
Implied volatility has come down meaningfully since the FTX collapse, currently at 50% — as opposed to 140%.
25 Delta Skew and implied volatility focus on options contracts expiring in one week from today.
Options 25 Delta Skew: (Source: Glassnode)

 

Options ATM implied volatility: (Source: Glassnode)

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Filed under: Bitcoin - @ February 14, 2023 10:20 am