Are ETFs and Treasuries Selling ETH's Volatility?

Introduction

The past year has seen a significant decline in both ETH’s realised volatility and its at-the-money implied volatility. This has materialised clearest in the ratio of ETH to BTC ATM IV, which has compressed towards 1.3–1.4 after spiking to 2.5 in summer 2025 for short-dated options.

In this note we aim to understand whether declining ETH volatility is at least partly a byproduct of the rise in covered-call writing via listed options on spot Ethereum ETFs as well as digital asset treasuries selling put options, aiming to quantify the magnitude of this short-vol activity on derivatives markets. This is a phenomenon we have previously explored in BTC options markets through Bitcoin digital-asset-treasury firm, Metaplanet.

ETH implied and realised volatility have fallen

After a brief spike to 2022 levels of implied volatility, ETH’s 30-day ATM IV has spent most of H1 2026 trading lower. In late-May this year, forward looking vol expectations fell to a year-to-date low of 45%. While on an absolute basis, that was not as extreme as the 25% lows of 2023, implied volatility has currently settled below 50% in early July, around 15-vol points lower than the 65–70% level that prevailed through much of 2025.

Figure 1: ETH at-the-money options’ implied volatility at constant 30-day tenor. Sources: Block Scholes. Data behind this chart available via BlockScholes REST API.

This selloff in volatility expectations appears to be structural across the whole volatility surface. Implied volatility for both short-tenor (7d) and 90d options has also declined. There is also evidence that the decline is not purely an implied phenomenon: ETH realised volatility has drifted lower through 2026.

30-day realised volatility fell from 85% in March 2026 to 38% in May. Excluding the two drops below 40% in 2026, the last time realised vol had fallen that low for ETH was back in November 2023. As such, it is apparent that realised volatility in 2026 has come within the bounds of the lower end of its historic range.

Figure 2: ETH at-the-money options’ implied volatility at a constant 30-day tenor (yellow) and 30-day realised volatility on hourly returns (green). Sources: Block Scholes. Data behind this chart available via BlockScholes REST API. Spot data found here.

ETH vs BTC: the Summer-2025 spike and the 2026 compression

The effect of the selloff in ETH volatility is best seen in the ratio of ETH-to-BTC at-the-money IV.

In the summer of 2025, the ETH/BTC 7-day and 30-day ATM IV ratio spiked to as much as 2.5 and 2.1, fundamentally driven by a collapse in BTC volatility through the May to September 2025 period (ETH vol traded with 2.5x as much volatility as BTC options). BTC ATM vol collapsed into the low-30s, while ETH vol held up at 70% through the entire year.

Since that peak, and through 2026, both assets' volatility has fallen and the ratio has compressed back into a 1.3–1.4 band.

Figure 3: ETH/ BTC at-the-money implied volatility ratio at 7-day (blue) and 30-day (yellow) constant tenors. Sources: Block Scholes. Data behind this chart available via BlockScholes REST API.

Overlaying the two ATM IV levels lets us attribute the 2026 move precisely. ETH implied volatility has fallen from 70% down to 45-50%, while BTC IV has recovered from its then 2025-lows.

Figure 4: BTC (green) and ETH (purple) at-the-money implied volatility at 30-day constant tenor. Sources: Block Scholes. Data behind this chart available via BlockScholes REST API.

The scatter plot below confirms that the volatility implied by ETH options traders is now considerably lower than what is implied by its linear relationship with BTC IV. Given the level of volatility markets are currently pricing in for the next 30 days for BTC, according to that linear relationship, traders in ETH options are underpricing implied vol by around 10 percentage points.

Figure 5: BTC 30-day at-the-money implied volatility (x-axis) against ETH 30-day at-the-money implied volatility (y-axis). Sources: Block Scholes. Data behind this chart available via BlockScholes REST API.

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The supply hypothesis: structural ETH option sellers

In the past we’ve argued that declining levels of both realised and implied volatility in BTC could be attributed to a stickier, institutional holder — one more responsible for spot price action and increasingly active in derivatives markets.

There is preliminary evidence that the same phenomenon may now be taking place in options markets on Ether. Two cohorts have emerged in late-2025 / 2026 as recurring, structural sellers of ETH optionality:

• Covered-call / option-income ETFs that write calls on ETH (or ETH ETPs) to harvest premium and pay weekly/monthly distributions to holders. Selling calls can have the effect of suppressing upside (call-wing) IV. The funds write their calls largely on US-listed ETHA options (options on BlackRock’s iShares Ethereum Trust ETF).
• ETH digital-asset treasuries (DATs) that hold ETH on their balance sheet and — in at least one disclosed case — sell options for income/accumulation.

Covered-call / income ETFs

The launch of a number of synthetic covered-call/ income-based ETH ETFs market coincides with the compression in ETH volatility through 2026 — but we note that these ETFs are, as yet, still small in magnitude. Total AUM is approximated to $133M, concentrated in NEHI (NEOS Ethereum High Income ETF) and YETH (Roundhill Ether Covered Call Strategy ETF).

Most of the funds listed below hold T-bills plus synthetic ETH exposure, rather than outright owning ETH. For example, looking at the holdings decomposition of NEHI, 81.1% of its AUM is in US T-bills and only 19.4% is in BlackRock’s Spot Ethereum ETF (iShares Ethereum Trust ETF).

"Synthetic covered call" here refers to how the funds obtain their ETH exposure. Unlike a traditional covered-call, where the investor owns the underlying and writes calls against it, most of these funds do not own spot ETH. Instead they create long ETH exposure synthetically, by buying a call and selling a put at the same strike and expiration, and then write (sell) calls at a higher strike on top of that exposure to generate income. Some of the long exposure is also held directly as shares of a spot-ETH ETF.

Read more here (“This distinction causes the Fund’s income generating option strategy to be commonly referred to as a “synthetic covered call strategy” as opposed to a traditional covered call strategy, because the Fund primarily has synthetic exposure to Ethereum.”) and here (“It is this distinction that causes the Fund’s strategy to be properly termed as a “synthetic covered call strategy” as opposed to a traditional covered call strategy, because the Fund primarily has synthetic exposure to an Ether ETF.”)

The notional of options these funds can sell is capped by their (modest) NAV. NEOS Ethereum High Income ETF (NEHI) states in its investor prospectus that “The Fund will hold U.S. Government securities, such as bills, notes and bonds issued by the U.S. Treasury, as collateral” and that the “The Fund has the ability to write call options on 25% to 100% of the net asset value of the Fund, although the Fund may be outside of this range from time to time because of market or other conditions.”

Additional information about the tenor and strikes traded varies from fund to fund. NEHI’s prospectus, for example, states that “call options written by the Fund will generally have expirations of approximately one month” – though when it comes to the strikes the options are sold at, it claims a "proprietary, rules-based, systematic model” is used “to manage the Fund’s options positions”. Roundhill’s YETH fund prospectus on the other hand states that “the Fund will sell Ether ETF Call Options at a strike price that is out-of-the-money”, with expirations “of approximately one week or less”.

As such, we use NEHI’s (the largest of the ETFs) 25-100% of AUM range as a lower and upper estimate for the notional of calls being sold by this cohort of the market:

• Lower-bound estimate: 25% of the $133M AUM = $33M notional
• Upper-bound estimate: 100% of the $133M AUM = $133M notional

100% of AUM as notional is theoretically possible. This is because even though most of the AUM is held in T-bills, the ‘covered’ aspect of synthetic covered calls comes from creating a synthetic long position in ETH, with the cash acting as collateral. Via put-call parity, buying a call and selling a put at the same strike and expiry costs roughly the same, meaning the funds can hold most of their AUM in T-bills and still have a long exposure to the underlying and be ‘covered’ (via the synthetic position).

BitMine’s Put-Selling Activities

Public ETH treasuries collectively hold 8.2M ETH (6.8% of supply). Most pursue yield generation via staking or DeFi activities, while BitMine Immersion (BMNR) — the largest digital asset treasury holder of ETH — has started to generate additional yield via options. This is something we’ve analysed through public filings documented by Metaplanet and expect is something other digital asset treasuries have likely begun to engage in too.

BitMine’s 10-Q for the quarter ended 28-Feb-2026 discloses (in Other income) $24.09M of option-premium income alongside a $65.27M unrealised loss on derivatives, from ETH option contracts entered into "primarily through the sale of put options" as part of its treasury strategy. By selling puts, BitMine’s supply of volatility lands on the put-wing of the smile rather than directly on ATM/upside — i.e., on the opposite wing to the covered-call ETFs.

Like Metaplanet, no notional, strike or counterparty is disclosed. However, mirroring the methodology in our Metaplanet report (see here), we attempt to estimate the notional value of puts sold by BitMine:

In an April 2026 SEC filing, Bitmine wrote “In addition to our operating revenues, we generate option premium income through the sale of ETH-denominated option contracts, primarily put options, as part of our digital asset treasury strategy. During the three months ended February 28, 2026, we recognized $24,090,000 of premium income from these option contracts.”

We first assume a single block sale of 3-month ATM puts struck at the start of the aforementioned 3-month period (1-Dec-2025). Assuming an entry time and day of 08:00 UTC (1-Dec-2025), ETH spot was $2.840.82 according to Block Scholes’ data. The implied volatility of a 3M ATM put option at that time according to our data was 70.9%. This gives a fair ATM put premium of $399.81 per ETH (i.e., 1 ETH of put options generates ~$400 in premium, assuming no haircut on the mid-price). Dividing the $24.09M premium implies:

• 60,254 ETH of puts sold (notional $171M at entry), equivalent to 1.21% of BitMine's 4.98M ETH holdings.
• Sensitivity: the $399.81 value assumes BitMine collects the full fair value of each put, with no haircut on the mid-price.

Estimating the market impact

At only 1.2% of holdings, BitMine’s derivatives activity can be considered early-stage when considered against a number of other factors. Firstly, the estimated number of puts sold in terms of ETH is small relative to the amount of ETH held on its books. Secondly, the 1.2% of holdings is small compared to other digital asset treasuries such as Metaplanet, who we estimated had sold a notional size of put options worth approximately 14% of its BTC holdings in our previous report in October 2025.

Additionally, we can compare the total estimated notional of puts and calls sold to the open interest of ETH options markets. This provides another lens of how big these sellers are against the market they trade into. ETH options primarily trade across two major venues: Deribit, the crypto-native options venue, and US-listed options on BlackRock's spot Ethereum exchange-traded fund ETHA.

Figure 6: ETH open interest on Deribit and ETHA options. Sources: Block Scholes, Bloomberg

Combined, the two venues carry around $5B of ETH options open interest (split almost equally between both venues). Against that, the structural sellers we have identified (covered-call ETFs + BitMine's put-book) maintain a standing short-option position of roughly $33M–$133M (the covered-call ETFs, writing on 25–100% of their $133M NAV) plus $171M (BitMine): $204–304M at any one time — roughly 4–6% of total current open interest.

Crucially, this is not a one-off sale. For the covered-call ETFs, as each batch of options expire, they are likely re-entering at the same size, resulting in a persistent notional of $33–133M, not a single trade.

This is a meaningful one-way (selling) flow of volatility relative to open interest and it stems from just two cohorts of sellers required to disclose their activities. Given that the notional for BitMine is only 1.2% of holdings, it means there is substantial room to scale. Additionally, this analysis only captures disclosed sellers; it is reasonable to expect other institutions are already running similar, undisclosed programmes. Equally, this percentage will only get larger if existing ETF providers continue growing their AUM and if more ETF providers begin to issue similar style covered-call products.

The second-order volatility effect

The estimation that BitMine and covered-call ETFs are short a significant notional size of options that is 4–6% of ETH open interest suggests this activity may indeed be dampening implied volatility. However, there is also a secondary effect from their call and put-selling, which comes from the market makers on the other side of the trade. These market makers may be exerting a second-order pull on realised volatility when they hedge these positions.

When they go long a call or put (taking the other side to the covered-call ETFs and Bitmine), a market maker holds a long gamma and long vega position. Delta-hedging their gamma has an impact on realised volatility: in order to stay delta-neutral, they are required to sell into rallies and buy dips, both of which can mechanically dampen realised volatility. Additionally, should they choose to just sell those puts or call back to the market, as a supplier of vol to the market, that acts as a drag on implied volatility.

Overall, the structural selling of volatility both from covered-call ETFs and digital asset treasuries is a factor that is a net contributor to an oversupply of ETH volatility. The decline in at-the-money implied volatility across the ETH surface through late 2025 and 2026 at least partly coincides with the launch of these ETFs and BitMine’s entry into ETH options markets; even if not conclusive evidence.

Figure 7: ETH at-the-money options’ implied volatility at constant 30-day tenor, with vertical lines marking the launch of different ETH covered-call ETFs. Sources: Block Scholes. Data behind this chart available via BlockScholes REST API.

ETH at-the-money implied volatility is still responsive to broader market moves (see the spike in IV in Feb 2026), however volatility has nonetheless trended towards the lower-end of its historical range, and has declined significantly relative to BTC in line with the growth in call and put options selling.

Figure 8: ETH/ BTC at-the-money implied volatility ratio at several constant tenors, with vertical lines marking the launch of different ETH covered-call ETFs. Sources: Block Scholes. Data behind this chart available via BlockScholes REST API.

Our estimate of notional of puts and calls sold by these ETFs and BitMine equivalent to 4-6% of open interest is a meaningful amount, particularly given that it stems from only two cohorts of sellers who are providing repeated and predictable one-way pressure on volatility. We also note it is not unreasonable to expect those already involved will continue to scale the size of their operation and that other institutions are already engaging in a disclosed manner, or will begin to engage in similar activities — both of which will continue to add to the drag on volatility over time.

Finally, market makers taking the other side of these positions are also contributing to the decline in ETH volatility on the margin, either through delta-hedging their long gamma positions and/ or by selling these options back to the market.