Bitcoin options traders increase their downside bets as near-term implied volatility spikes: analysts
Quick Take
- The distribution of bitcoin options open interest shows demand for downside protection, analysts said.
- The implied volatility of short-dated bitcoin options suggests an anticipation of near-term price volatility, the analysts added.
An increase in put options indicates traders' growing demand for downside protection following bitcoin's recent price correction, analysts said.
According to Deribit data, the put-call ratio for bitcoin options open interest ahead of this Friday's weekly expiry has risen above one, which is seen as a bearish market signal. A ratio above one means significantly more put options than call options are being traded. This indicates that more investors are betting on or hedging against a price decline rather than an increase.
Deribit data shows that the largest cluster of options open interest for Friday's expiry consists of puts at a strike price of $58,000, with significant concentrations of puts also at the $52,000 and $48,000 strike prices.
The put-call ratio of bitcoin options open interest ahead of this Friday's expiry has risen above one. Image: Deribit.
Bitcoin options traders betting on further downside
"An increase in bitcoin options open interest is largely driven by an increase in relative put open interest, consistent with the asset's recent price correction, as bitcoin options traders increase their downside bets and hedges. A spike in put-call volume ratios as well as one-month 25-delta option skew signalled a significant increase in demand for downside protection," Monday's ETC Group report said.
The report added that bitcoin options implied volatility has increased during the latest leg down, with implied volatilities of one-month at-the-money bitcoin options currently at around 50.5%. "The term structure of volatility is also inverted now with short-dated options trading at significantly higher implied volatilities than longer-dated options, this tends to be a sign of overextended bearishness in the options market," the ETC Group analysts added.
Bitcoin changed hands at around $57,104 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 Monday was $2.21 trillion, dropping 0.4% in the last 24 hours, according to Coingecko data.
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