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Our monthly report delves into insights from options volatility to inspire your next crypto move.
Realized volatility collapse: Realized volatilities for BTC, ETH and SOL spot tokens hit historic lows during early September, despite macro headwinds and the Fed’s renewed rate-cutting cycle.
Implied volatility premium: Options markets continue to price elevated implied volatility, maintaining a premium over realized levels. This dislocation, typically driven by event risk, has narrowed post-FOMC resolution.
BTC skew turns bearish: BTC options skew remains more bearish than that for ETH across tenors. August marked a sentiment shift from bullish to bearish, with volatility smiles pricing downside protection at a premium. Despite BTC reaching a $124K ATH, OTM puts dominate, signaling heightened bearish positioning.
Figure 1. Ratio of BTC (orange), ETH (purple), and SOL (cyan) 7-day constant tenor, at-the-money implied volatility levels to 7-day realized volatility levels of spot prices in 2025. Source: Block Scholes
Despite macro-driven, risk-on moves in August and September, realized volatility for crypto has collapsed to historic lows. BTC, ETH and SOL are all trading with 7-day realized volatility well below their 2025 averages — BTC at 20% (vs. 42%), ETH at 40% (vs. 71%) and SOL at 56% (vs. 85%) — even amid bullish rallies and macro surprises.
Implied volatility remains elevated relative to realized, with options pricing ~1.5x the delivered volatility across all three assets. This premium began on Sep 13, 2025, ahead of the Federal Reserve’s September 18 meeting, and has persisted post-event, suggesting broader structural drivers beyond calendar risk.
The dislocation is market-wide, not coin-specific. ETH continues to trade at a volatility premium to BTC, and SOL maintains a slight premium to ETH — consistent with year-to-date trends.
Markets are signaling a return to normal volatility levels. Resolution will come via either a drop in implied volatility (cheaper optionality) or a spike in realized volatility that validates current pricing.
Figure 2. Ratio of ETH 7-day constant tenor, at-the-money implied volatility to that of BTC (blue) and SOL (red) in 2025. Source: Block Scholes
Bitcoin’s August 14 ATH of $124K was short-lived, reversing to $117K intraday following a hotter-than-expected July PPI print (+3.3% YoY, vs. 2.5% expected). The inflation surprise triggered broad risk-off sentiment and renewed fears of consumer price pass-through.
Options markets responded swiftly: BTC’s 90-day skew turned negative for only the third time in 2025, signaling demand for downside protection. This bearish skew persisted through September, deepening alongside spot sell-offs in BTC and ETH.
ETH options initially retained a call-side premium, but by late August — ahead of Powell’s Jackson Hole speech — 90-day skew also turned negative. BTC’s downside skew has since remained intact, marking the longest sustained bearish positioning this year.
By mid-September, directional divergence had intensified. ETH’s 90-day skew flipped bullish toward OTM calls, while BTC maintained bearish skew. ETH’s implied volatility remains elevated vs. that of BTC, reinforcing the directional split — the largest simultaneous divergence in skew and volatility between the two assets YTD.
Put options offer defined downside protection for a fixed premium. To reduce cost, traders often deploy put spreads — buying a near-the-money put while selling a deeper OTM put — sacrificing protection beyond the lower strike in exchange for premium income.
This structure becomes more attractive when volatility smiles skew toward OTM puts, signaling elevated demand for downside hedging and richer premiums for short legs.
Example: A 7-day ETH put struck at $4.5K on Sep 15, 2025 returned 220% after ETH dropped to $4.15K. A put spread with a short leg at $4K would have boosted returns to 262%, as the $4K put expired worthless. Had ETH breached $4K, the outright put would have outperformed, highlighting the trade-off between cost and coverage.
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