I wiped the tiredness out of my eye and peered at the clock.
Midnight again.
Another day staring at the charts so long it felt like my brain was going to bleed.
What kept me captivated was not the data, but rather the various paths it could take.
Depending on the direction things went in the coming days to weeks, the opportunities could be monstrous.
I found myself lost in another world, imagining different scenarios that could lead to price movements and how it would play out on the charts. It’s no wonder I lost track of time.
Now for those of you familiar with the lore - I’m not much of a “shape rotator”, a slang term used to describe those gifted in STEM,
I’m just a janitor on the internet after all - my talents put me more on the “wordcel” side of the spectrum, which means I’m better at writing than I am computer science.
But when it comes to markets I have a foot in both worlds, out of necessity.
There’s no other way to succeed in trading unless you can identify and act on big opportunities before they arise, and to do so requires at least a small amount of “shape rotating” ability.
Today let’s dive into the world of ETH options to see what edge rotating shapes can provide.
Shape Shifting
The shape I’ve spent so much time rotating is seen below.
It’s ETH’s volatility surface chart.
It’s a three dimensional view of implied volatility. I tend to shy away from sharing this here in Espresso since it is a bit too much to digest.
To make it easier to explain what is exactly going on, we can lean on its two dimensional cousin, the IV term structure chart, seen below.
For those not already familiar with it, what it represents is the options market expectations of future volatility on ETH.
When IV scores are low, options premiums - or the cost you pay for contracts is also low. This was the case in early May when ETH IV was trading near a bargain score of 40.
The opposite is true when IV is high, when this happens options premiums skyrocket, as was the case last week, when the ETH ETF bombshell sent IV levels over 170.
What’s been most notable here over the past week is how the curve on the front-end which represents options market volatility for the summer months, namely June and July, have dropped 10 points each over the past week, as where IV on the backend has remained elevated (compare the dark blue line showing last week’s IV vs the light blue line showing current below).
It’s easier to see it when we compare the current structure to one from a week ago, seen below. Note the drop from dark blue to light blue (current).
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