Chart of The Week: Skew Index

Hello and welcome back to glass nodes chart of the week. Today we are going to be looking at the skew index. What that is it looks at options contracts and studies investors willingness to pay for exposure for price to go up or down. In other words, if the skew index is higher, that means options traders are buying calls. they're paying extra premiums on that, but they're expecting bullish sentiment and prices to increase. If it's negative, that means options traders are willing to spend more money on puts, and they're expecting bearish sentiment to move forward. So, today we're going to look at the six-month skew index. So, how investors did over their six-month bets, 3 months, 1 month, and 1 week. And we'll start with the six-month window. When we do this, you'll notice that um the skew index has always been positive. Um since options have existed on a six-month time horizon, people have always been bullish on Bitcoin and never bet on average more for puts than for calls or they've on average bet for price to increase. You'll notice there's been windows where it was extreme euphoria and it was pretty much everyone's betting long and premiums were very expensive. Um, we're at pretty close to all-time lows right now, but it's still positive. People are still betting on the six-month performance to Bitcoin for price to increase. [snorts] Similarly, the 3-month will follow a very similar trend. There was some euphoric phases. We got close to zero a few times and we're almost there right now, but we're still slightly above that zero mark. And on [clears throat] a 3-month window, options investors are still betting long. But if we look at a one-mon window, you'll notice there were some times where price got or um the ratio went negative. You'll notice this was during the very bare market during October of 2022. And we've then since got there as of lately, we're currently slightly negative and um judging by recent price, maybe not a bad call. And then if we look at the one week, it's kind of been choppy all the way through. There's been windows with Euphoria where it's well above the zero threshold. It's gotten well below, but for the most part, it kind of stays pretty close to that main horizon as over a oneweek window, people might be more willing to bet against the price for a short near-term event. So, how successful have these traders been? If we look at each one and just their win rate, meaning if we bet, if someone's on the six-mon skew betting for price to go up, how successful have they been? Did price actually go up across that six-month window? If we filter to just that 6 months, we'll see that the win rate for price to go up has been about 70%. Uh, as we mentioned earlier, over the six-month skew, it's never gone negative. So this is just betting like buy and hold. How successful has it been over 6 months? Uh about 70% of the time since you know 2020 area it's been successful. So well done with your diamond hands. And then similarly the 3-month rate again never went negative. So if you just bet long the entire time you were right about 60% of the time. So if we focus more on the one month and one week who at sometimes have bet negative, how successful were they? The one month had a win rate of about 55%. And the one week has a win rate of about 51. 5%. So still on average winning, but that's not a slam dunk incredible rate. Uh what I find interesting about this is it at all times has been positive. like they have done a good job both on the one week and one month at on average being correct, but you're not going to see many hedge funds boasting about a 51. 5% win rate. What this tells me is that there is some indicative nature of options markets. Uh but you're missing a big piece of the picture if you're not also following futures markets and onchain movements as well. That's it for now. Thank you so much for tuning in to the chart of the week and we look forward to seeing you next time.