Credit: Original article published by Crypto Briefing Blog.

Bitcoin options traders have been aggressively buying call options at exorbitantly high prices. Leading crypto derivatives exchange Deribit saw 752, 462, and 230 contracts bought on Sept. 13 at strike prices of $36,000, $32,000, and $28,000, respectively. Each contract allows a buyer to purchase one Bitcoin at the strike price at the time of expiration. 

The flood of purchases thus indicates that many traders expect Bitcoin to be at or above these three prices before the end of the year. 

BTC Options
Bitcoin Options Open Interest Daily Change Source: Skew

Though traders are willing to bet on BTC prices skyrocketing to new highs, the current macro environment presents many uncertainties. 

Bitcoin Options Upside Risk 

The aggressive accumulation of call options at strike prices of $24,000 and $36,000 is indicative of “tail risk management.” Tail events are rare events with drastic changes in price. 

The chart below shows that the most number of bids are around the mean at the $10,000 mark. However, there is a significant tail to the right, which extends from the strike price of $20,000 to $36,000.  

Bitcoin Options Chart
Source: Twitter

Extensive call options buying at such extreme prices are a reflection of the potential “up-jumps” in prices. In the case of an upswing in BTC price, these call options will become more expensive, profiting higher than the actual increase in the spot price.

Probability of BTC Options
Bitcoin Options Market Probabilities Source: Skew

Nevertheless, the market only places a 6% chance that BTC will break above its previous all-time high at $20,000 by Dec. 20. This figure drops off much further after $28,000. By limiting the losses to the price paid for the options, the investors can efficiently tap low-probability, but high reward surges. 

Moreover, while the call option creates buying pressure on the market, the entity betting on such high calls could also be decreasing his spot or futures exposure. 

Uncertain Times and Volatility 

The put/call ratio of the open interest in the options market has oscillated between 0.4 to 0.75 in the last one year. A surge in the ratio usually represents increased hedging against any possible downside, which exerts negative pressure on the market. 

Currently, the ratio is at par with prior levels of high exposure from sellers or put orders. 

BTC Put/Call Ratios
Bitcoin Put/Call Ratio Source: Skew

The implied volatility is greater than the realized volatility, which would indicate a brief period of consolidation before a clear trend kicks in. As the price has continued to range in the $10,000 to$10,500 range without any huge sell-off, the consolidation points bullish.

However, the 2020 U.S. elections due in November are inducing a lot of uncertainty in the markets. 

Even the VIX index of the S&P 500 predicts a lot of volatility in traditional markets, especially towards year-end. The correlation coefficient between the stock market and Bitcoin has again grown stronger after a pullback during Q3 2020. 

Bitcoin and S&P 500 Correlation Coefficient Source: TradingView

Bitcoin is set up for a non-correlation and an ideological test in the coming months as the largest economy in the world chooses its new leader. 

This article is strictly for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. CryptosOnline.com does not provide investment, tax, legal, business or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any loss or damage caused or alleged to be caused by, or in connection with, the use of or reliance on any content, goods, services or opinions mentioned in this article.

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