Bitcoin’s Options Market Trends Indicate a Cautionary Approach
While bitcoin’s price continues to reach new lifetime highs, the latest options market trends suggest that traders are not chasing the uptrend with the same fervor as before.
According to data from CoinDesk, bitcoin’s price rose above $107,000 on Monday, surpassing the previous peak on December 5 and taking the cumulative post-U.S. election gain to over 50%. This rally follows President-elect Donald Trump’s assurance that the U.S. will build a bitcoin strategic reserve similar to its strategic oil reserve. Analysts expect the winning streak to continue next year, with prices ranging between $150,000 and $200,000 by the end of the following year.
However, the current pricing of options trading on Deribit indicates that traders are not chasing the rally like they used to, signaling a more cautious outlook for the short term.
Risk Reversal and Put-Call Ratio
At press time, the 25-delta risk reversal for options expiring on Friday was negative, indicating the relative richness of put options that provide protection against price drops. Puts expiring on December 27 were trading at a slight premium to calls, while the risk reversals extending to the end of March end expiry demonstrated a call bias of less than three volatility points.
This starkly contrasts the trend we’ve observed over the past few weeks, where traders aggressively chased new price peaks, driving short-term and long-term call biases to over four or five volatility points. In fact, short-term risk reversals frequently displayed a stronger call bias than their longer-term counterparts.
Recent Block Trades
The latest block trades coming through on Deribit, as tracked by Amberdata, also show a bearish lean. The top trade so far today has been a short position in the December 27 expiry call at the $108,000 strike followed by long positions in the $100,000 strike puts expiring on December 27 and January 3.
Conclusion
The cautious sentiment in the options market suggests that traders are exercising prudence, taking a more measured approach to the bitcoin market. This shift in sentiment may be attributed to concerns that the Federal Reserve will signal fewer or slower rate hikes for 2025 while delivering the widely expected 25 basis points rate cut. Such an outcome could accelerate the hardening of the bond yields, strengthening the dollar and denting the case for investing in riskier assets.
FAQs
Q: What is the current state of the bitcoin market?
A: The bitcoin market is experiencing a cautious sentiment, with traders not chasing the uptrend as aggressively as before.
Q: What is the current pricing of options trading on Deribit?
A: The current pricing indicates a more cautious outlook for the short term, with a negative 25-delta risk reversal and a put-call ratio favoring puts.
Q: What is the top trade on Deribit today?
A: The top trade so far today is a short position in the December 27 expiry call at the $108,000 strike followed by long positions in the $100,000 strike puts expiring on December 27 and January 3.
Q: What is the expected outcome of the Federal Reserve’s rate hike decision?
A: The expected outcome is that the Federal Reserve will signal fewer or slower rate hikes for 2025 while delivering the widely expected 25 basis points rate cut.
