Bitcoin options implied volatility rises sharply on short-dated puts as traders prepare for potential downside swings: analysts

by Brian McGleenon

Market Updates • June 27, 2024, 6:33AM EDT

Published 1 minute earlier on

The Block

Quick Take

The implied volatility of short-dated bitcoin options indicates that derivatives traders are bracing for near-term price volatility, potentially to the downside, according to analysts.
However, derivatives traders are maintaining their focus on a longer-term bitcoin price upside — despite a shift in sentiment reflected in short-dated IV, analysts added.

The implied volatility of short-dated out-of-the-money bitcoin puts on the CME has increased over the past month as traders anticipate greater price volatility and hedge against the potential for further downside movement, analysts say.

According to the CF Benchmarks' Bitcoin Volatility Index, the implied volatility for both short-dated puts and short-dated calls was approximately the same at the end of May, prior to the recent market downturn, during which bitcoin's price has fallen by over 14% in the past month. However, CF Benchmarks analysts are now observing a significant increase in implied volatility for near-term puts compared to their corresponding calls.

"Over the past few weeks, we've seen a larger increase in IV for short-dated puts, compared to calls, suggesting an increase in appetite for tactical hedging," CF Benchmarks analysts told The Block.

When IV increases for put options compared to call options, it indicates that traders are expecting greater price movements or increased uncertainty, particularly to the downside. "From May 31 to June 24, IV increased by 13.3% on 5D puts, and between June 7 to June 24, there was a 23% increase in IV on 5D puts," the analysts added.

However, CF Benchmarks data showed that there hasn't been a dramatic shift in strategic positioning for longer-dated OTM calls. "This suggests traders are continuing to look for longer-term bitcoin price exposure to the upside, with the short-dated IV appearing to be a sentiment shift for the short-term," the analysts added.

Bitcoin changed hands at around $61,245 at the time of writing, having traded flat in the past 24 hours, according to The Block’s price page. The global cryptocurrency market cap Wednesday was $2.39 trillion, dropping 0.1% in the last 24 hours, according to Coingecko data.

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About Author

Brian McGleenon is a UK-based markets reporter for The Block. He has worked as a financial journalist and producer for multiple news outlets over the years, such as Fuji Television, The Independent, Yahoo Finance, The Evening Standard, and The Daily Express. Brian is also a screenwriter and producer with one feature film produced and one in development with Northern Ireland Screen. Apart from web3 and cryptocurrency developments, he is also interested in geopolitics, environmental issues, artificial intelligence, and longevity research. Get in touch via email [email protected].