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XRP Options: A Shift in Market Sentiment?
Payment-Focused Cryptocurrency XRP Sees Significant Decline
Payments-focused cryptocurrency XRP peaked at $3.40 in January, but has since dropped 30% to $2.40. Despite this decline, the $5 call option remains the most favored bet on Deribit, offering significant upside potential for buyers if the price exceeds that level. However, this does not necessarily indicate an outright bullish positioning among traders.
Covered Calls: A Popular Strategy Among Traders
At press time, the $5 call is the most popular strike, with a notional open interest of $3.84 million—the highest among all XRP strikes on the exchange, according to data source Deribit Metrics. Notional open interest reflects the dollar value of all active options contracts at any given time. On Deribit, one options contract represents one XRP.
"Most of these are covered calls," explained Lin Chen, Deribit’s Asia Business Development Head, in an interview with CoinDesk. This explains the substantial buildup in open interest for these out-of-the-money (OTM) calls.
A Strategy Popular in Traditional Markets as Well
The covered call strategy involves selling higher-level OTM calls while holding the underlying asset—in this case, XRP. This approach allows traders to capture the premium from selling or writing the call while limiting potential losses from an unexpected market rally. This strategy not only generates additional yield on top of their holdings but is also popular in traditional markets as well as in bitcoin and ether trading.
Distribution of Open Interest: A Visual Representation
[Insert image: XRP Options: Distribution of Open Interest. (Deribit)]
Key Takeaways
- The $5 call option remains the most favored bet on Deribit, offering significant upside potential for buyers if the price exceeds that level.
- Covered calls are a popular strategy among traders, involving selling higher-level OTM calls while holding the underlying asset.
- This approach allows traders to capture the premium from selling or writing the call while limiting potential losses from an unexpected market rally.
FAQs
Q: What is the current price of XRP?
A: The current price of XRP is $2.40, having dropped 30% from its January peak of $3.40.
Q: What is the most popular strike on Deribit?
A: The $5 call is the most popular strike, with a notional open interest of $3.84 million.
Q: What is the covered call strategy, and how does it work?
A: The covered call strategy involves selling higher-level OTM calls while holding the underlying asset. This approach allows traders to capture the premium from selling or writing the call while limiting potential losses from an unexpected market rally.
Q: Is this strategy popular in traditional markets as well?
A: Yes, the covered call strategy is also popular in traditional markets, as well as in bitcoin and ether trading.
