Bitcoin options surge as price rallies, boosting Market activity. Increased demand for calls drives volatility. Implications for investors.
Bitcoin Options Volume Jumps to $3.3B as Price Rallies to Two-Month High
Bitcoin Options Market Witnesses Surge in Volume as Cryptocurrency Surges
Bitcoin's recent surge to a two-month high has sparked a surge in demand for call options and increased activity in the options market. On Wednesday, the price of Bitcoin reached $30,800, marking its highest value since April 14. This rally comes as prominent financial institutions such as BlackRock (BLK), WisdomTree, and Invesco (IVZ) have submitted applications for spot Bitcoin ETFs, indicating a sustained interest from institutional investors in the leading cryptocurrency.
Related Articles
Traders Turn to Options in Response to Bitcoin's Market Trajectory
The abrupt change in Bitcoin's market trajectory, with prices briefly dipping below a crucial support level of $25,200 just a week ago, has prompted traders to explore options as they seek to capitalize on the rally. On that Wednesday, Bitcoin options contracts worth a staggering $3.3 billion were traded across major exchanges, with Deribit leading the way, accounting for over 80% of the global trading volume. This single-day notional volume is the highest seen in three months.
Growing Interest in Call Options
"Call options" are becoming increasingly popular among traders. These options provide investors with the right to purchase the underlying asset, in this case, Bitcoin, at a predetermined price within a specific time frame. Conversely, "put options" grant investors the right to sell the asset. Traders often opt for call options as they offer a cost-effective way to leverage bullish positions. In the past 24 hours, call options with strike prices of $30,000, $31,000, $32,000, and $40,000 have seen substantial interest from traders.
Call Spreads Gain Traction
Over the last seven days, call spreads have accounted for 45% of the total block flows. Call spreads involve executing large orders on over-the-counter liquidity networks, such as Paradigm, which are subsequently listed on exchanges. This strategy has been particularly favored among traders in recent days.
Covering Bullish Exposure Amidst the Rally
As the price rally continues, some call overwriters have been compelled to repurchase their bullish positions. Call overwriting is a strategy where investors sell call options against their owned cryptocurrency, aiming to generate additional yield in a flat-to-negative market. Patrick Chu, the director of institutional sales and trading at Paradigm, explained that given the rapid upward movement, many traders have chosen to buy back the topside.
Increased Demand Drives Volatility
The surge in options trading has led to an increase in Deribit's bitcoin volatility index, DVOL, reaching 59.24, the highest level since early April, according to Amberdata. DVOL measures Bitcoin's 30-day Implied Volatility, which is calculated using Deribit's options order book. Generally, higher options demand results in increased implied volatility, indicating investors' expectations of price turbulence during a specific period.
DVOL's Reaction to Recent Market Developments
Deribit's DVOL tends to rise when Bitcoin's prices rise, contrary to the usual pattern observed in traditional markets, where implied volatility increases during risk-averse periods. The recent surge in DVOL can be attributed to reactive movements based on recent headlines and the substantial increase in spot prices over the last three days. Chu noted that Bitcoin's prices remained relatively stable over the past two months, leading to low overall volatility. However, the recent market surge caught some participants off guard, prompting them to scramble and take necessary precautions.
Positive Correlation Between Implied Volatility and Spot Prices
Since the beginning of the year, Bitcoin's implied volatility and spot prices have displayed a positive correlation. This relationship further highlights the impact of market movements on implied volatility.
Stay informed with Breaking News along with Latest News and Top Headlines from India and around the world. Accurate, timely coverage of politics, business, tech, crypto, upcoming trends, sports & more.
