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Market case · ETH, week of 13 March 2023

Selling volatility into a 12.68% rally that is losing ground to BTC

Should an options desk that sold ETH volatility hedge its delta after a 12.68% weekly gain, or ride the rally and accept that a 17.66% range can reverse it?

The market facts are real; the decision maker is illustrative.

The week and the position

In the week of 13 March 2023, ETH rose 12.68% to close 1,780.68, having ranged from 1,565.00 (Monday 09:00 UTC) to 1,841.36 (Sunday 19:00 UTC), a 17.66% span, and it closed in the upper third of that range. Realised volatility was 65.9% annualised, volume ran 2.21 times the prior 12-week average, and the return sat in the 84th percentile of 265 weeks. ETH still traded 49.76% below its 52-week high and fell 14.48 percentage points behind BTC, with the ratio down 11.39%.

Judgment

A desk that sold volatility here is short both the move and the gap between ETH and BTC. Hedge the delta now to a level that survives another week of this magnitude, since realised volatility at 65.9% and a 3.07% hour mean the sold options can be repriced against the desk faster than premiums accrue. Do not chase the rally with fresh short-vol exposure at the 84th percentile of 265 weeks, and accept that hedging costs carry given funding stayed positive at 0.011% per eight hours.

What would change it

If ETH's realised volatility falls well below the levels implied by its sold strikes for several weeks, the hedge can be relaxed. If the ETH-BTC ratio stabilises or turns up, the cross-asset leg of the hedge can be reduced.

What sets this case apart

The hedge question here is set by ETH lagging BTC by 14.48 points inside a winning week, not by the size of ETH's own gain.

Weekly brief · week of 13 March 2023Week of 13 March 2023: Bitcoin posts its best weekly return in 265 weeks of historyWhen Bitcoin records its strongest weekly gain in over five years of history while Ether lags by 14 points, what does the week say about breadth, and what can it not say?Market case · BTC, week of 13 March 2023A 27.16% week paid just 0.0119% funding while the short leg faced a 4.47% hourShould the basis trader keep the equal-sized perpetual short through a week this extreme, or cut it so the short's margin survives another move like Monday's 4.47% hour?Concept · example: BTC, week of 13 March 2023Benchmarking a strategyHow do you know whether a trading strategy actually beat simply holding the asset?

Research notes on real market weeks, not investment advice. Sources: Binance spot BTCUSDT and ETHUSDT 1-hour candles and USD-M perpetual funding rates; weekly figures computed by WSTiger.

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