The real bearish signal of Ethereum revealed by the option market skew

The signals sent by the cryptocurrency options market last week were clear. As the implied volatility of Bitcoin and Ethereum significantly decreased, we could see that market fear was rapidly subsiding. According to the latest data analyzed by Gate Research, investor sentiment can be gauged through approximately $2.6 billion worth of BTC and ETH options trades scheduled for settlement in mid-January.

BTC and ETH Volatility Plummets, Market Fear Disappears

Currently, the implied volatility of BTC is 41%, and ETH is 57%, both considerably lower than last week. This is not just a numerical change but indicates a sharp reversal in market sentiment. The volatility that spiked due to earlier rapid increases has calmed down, and widespread panic has dissipated. While there is still defensive demand in the medium to long term, the overall trend is stabilizing.

Reading Investor Defensive Psychology Through 25-Delta Skew

The 25-delta skew indicator is the most reliable measure of how much investors worry about further declines. Comparing the skew changes from last week to this week, it is evident that the defensive sentiment, which surged after the spike, has returned to normal levels. This means investors are no longer expecting extreme downturns, signaling that market sentiment has become more stable.

Bearish Strategies Implied by Large ETH Options Trades

The most notable block trade involves approximately 14,000 ETH. Specifically, it consists of a combination of ETH-270326-3100-P put options bought and ETH-270326-3500-C call options sold, with a net premium expenditure of about $1.34 million. Analyzing this structure reveals that investors are hedging against Ethereum’s weakness, with a typical defensive strategy to hedge against a sharp drop below $3,100.

The largest combination trade was a risk reversal short strategy, which is a typical position taken by traders expecting a gradual decline. The continued appearance of such large trades suggests that institutional investors are also keeping short-term bearish views on Ethereum.

Simplifying Complex Options Trading with Gate’s Combination Strategies

As the number of complex multi-leg options strategies increases, individual investors need to utilize them effectively. To meet this market demand, Gate has launched a combination strategy order feature. This tool allows users to respond to various market conditions—such as narrow-range trading, gradual rises, or gradual declines—in a customized manner.

The combination strategy order supports all common multi-leg options strategies, including spreads and straddles. Investors can set multiple option legs simultaneously and view total costs, profit and loss structures, and risk exposures on a unified dashboard. This eliminates the need to manipulate each leg individually, greatly reducing trading complexity and enabling faster responses to market changes.

Investment Lessons from Skew Indicators

Ultimately, the changes in the options market skew indicate that the market has fully moved out of panic but still remains cautious of the downside. Retail investors can leverage data analysis tools and strategic trading features provided by exchanges to achieve a level of sophisticated risk management similar to institutional investors. Since options chain data, including skew, is the most reliable indicator that signals market direction ahead of the spot market, utilizing these tools for strategy development has become increasingly important.