Pair traders looking for an edge might want to focus on a little-known gauge tied to bitcoin and the S&P 500.
This gauge is the spread between Volmex’s BVIV – the 30-day implied volatility index for BTC – and its S&P 500 counterpart, the VIX index. The spread has begun to widen again, suggesting that BTC volatility is expected to exceed stock market risk.
Implied volatility is affected by demand for options or hedging instruments.
“When the BVIV-VIX spread widens, it typically signals that markets expect higher volatility in crypto than in equities,” Volmex founder Cole Kennelly told CoinDesk. “Crypto options markets adjust more quickly to liquidity and macro catalysts, so implied volatility often precedes traditional markets.”
The spread recently broke out of a months-long play between 20,000 and 32,000, piercing the downtrend from the March 2024 high. These patterns suggest that BTC is likely to see more volatility than the S&P 500 in the coming days.
The prospect of BTC volatility being relatively richer compared to the S&P 500 may draw pair traders to consider opposite volatility bets in BTC and the S&P 500.
“When the BVIV-VIX spread widens meaningfully, some traders view it as a relative value setup: Crypto implied volatility has become cheaper or widened relative to equity volatility. This type of view is typically expressed through multi-leg cross-volatility trades rather than a simple directional position,” Kennelly explained.
Trading volatility, a capital-intensive strategy, involves betting on price movement rather than direction, typically through non-directional options or volatility futures.
It goes without saying that these strategies are risky, like other games, and require constant monitoring of positions and ample capital, making them suitable for institutions.
