Whales Engage in Bearish Bets on Solana’s SOL Token as Price Continues to Decline
Deribit’s options market for Solana’s SOL token has become active, with whales engaging in bearish bets as the token’s price continues to decline ahead of an impending multi-billion dollar unlock.
Block Trades Dominate Options Activity
Last week, SOL block trades totaling $32.39 million in notional value crossed the tape on Deribit, representing nearly 25% of the total options activity of $130.74 million. This is the second-highest proportion of block trades to total activity on record.
A block trade in options refers to a significant, privately negotiated options transaction between two parties involving a large number of contracts. These trades are typically associated with whale activity and are executed over-the-counter, outside the regular order book, and then booked on the exchange, allowing for a minimal impact on the market prices.
Options Contracts: A Right, Not an Obligation
Options are derivative contracts that give the purchaser the right, but not the obligation, to buy or sell the underlying asset, in this case, SOL. A call option gives the right to buy, while a put option provides the right to sell. On Deribit, one options contract represents one SOL.
Whales Prefer Put Options
Last week’s spike in SOL block trades featured a preference for put options, which traders use to hedge against or profit from a potential price slide.
Nearly 80% of the block-trade volume was concentrated in put contracts, compared to only 40% puts for BTC and 37.5% puts for ETH during the same timeframe.
Impending SOL Token Unlock
The impending SOL token unlock on January 1 presents a significant headwind, according to Deribit’s Asia Business Development Head Lin Chen.
“Solana (SOL) will have a major token unlock event on March 1, releasing 11.2 million SOL tokens, valued at approximately $2.07 billion. This represents 2.29% of the total supply. A significant portion of the unlock comes from the FTX estate and a foundation sale,” Chen explained.
Market Volatility Expected
Chen noted that the large unlock could breed market volatility, as it accounts for nearly 59% of SOL’s daily spot trading volume. Hence, it’s natural to see a lot of hedging flow in put options in anticipation of a potential extended SOL price slide.
Conclusion
The high volume of block trades on Deribit, dominated by put options, indicates that whales are betting on a continued decline in SOL’s price. The impending token unlock on January 1 will likely exacerbate market volatility, making it essential for traders to stay informed and adjust their strategies accordingly.
FAQs
Q: What is a block trade in options?
A: A block trade in options is a significant, privately negotiated options transaction between two parties involving a large number of contracts.
Q: What is an options contract?
A: An options contract is a derivative contract that gives the purchaser the right, but not the obligation, to buy or sell the underlying asset.
Q: Why are put options being preferred by whales?
A: Put options are being preferred by whales to hedge against or profit from a potential price slide in SOL’s price.
Q: What is the significance of the impending SOL token unlock?
A: The impending token unlock on January 1 will release 11.2 million SOL tokens, valued at approximately $2.07 billion, and could breed market volatility due to its significant impact on SOL’s daily spot trading volume.
