BTC Implied Volatility Drops Post-Weekly Expirations

Key Takeaways

BTC implied volatility often decreases after weekly expirations.

Samneet Chepal, a crypto derivatives quant trader, observed that 80% of the time, implied volatility (IV) drops 24 hours after Friday's 8 AM UTC expiry.

The 'weekend effect' contributes to this trend, with traders adjusting their volatility outlooks for the weekend.

Observations on Implied Volatility

Samneet Chepal took to Twitter on September 24, 2023, to share his observations on Bitcoin's implied volatility. "Over the past year, BTC implied volatility has consistently taken a hit after weekly expirations," Chepal tweeted. He provided data showing that "80% of the time, IV experiences a drop 24 hours after Friday's 8 AM UTC expiry."

The 'Weekend Effect'

In a follow-up tweet 15 hours later, Chepal elaborated on the 'weekend effect,' a phenomenon he credits to fellow Twitter user @ShiliangTang. "Traders tend to adapt their vol outlook for the weekend, and today's no exception," he stated. The trader noted that volatility has "significantly cooled off," with DVOL (Daily Volatility) dropping by 5-7 vols. "Across the board, we're witnessing screamingly low vol levels," Chepal added.

Implications for Traders

The observed trend has implications for crypto traders who engage in options trading or other derivatives that are sensitive to volatility. Understanding these patterns can offer traders an edge in anticipating market movements post-weekly expirations.

Context and Market Impact

The cryptocurrency market is known for its high volatility, making these observations particularly relevant for traders and investors. A decrease in implied volatility can affect option premiums and may indicate a less risky environment for spot trading.