Bitcoin Options have flipped the script with a full 180-degree shift from last year’s Uber Bullish Bets to a sharp stance.
Since late last year, traders have been aggressively chasing breakout moves by shorting call options at the $100,000, $120,000, and $140,000 strikes on the derivative. Until recent weeks, the $140,000 call was the most popular derivative, with notional open interest (OI), or the dollar amount of active contracts, always above $2 billion.
Now, that has changed. The $140,000 call Open interest standing at $ 1.63 billion. Meanwhile, the $85,000 placed topped $2.05 billion in open interest. Places $80,000 and $90,000 strikes also today that fade the $140,000 call.
Clearly, the sentiment has turned decidedly bearish, and it’s no surprise that, since the price of BTC has collapsed by more than 25% to $91,000 since October 8, Coindesk data shows.
Put options Give the buyer the right, but not the obligation, to sell the underlying asset at a predetermined price at a later date. A put buyer is outright bearish on the market, looking to profit from or hedge against expected price slides in the underlying asset. A call buyer is bullish.
The chart shows the distribution of open interest in BTC options at different strike price levels at expirations. Clearly, OI gets stacked with lower strike puts, the so-called at-the-money put options.
While the number of active calls is still significantly higher than puts, the latter is trading at a significant premium (or skew), reflecting fears of the downside.
“The options reflect caution going into the end of the year. Short dated puts strikes at $84K to $80K saw the largest trading volume today. The front-end implied volatility is sitting around 50%, and the curve shows a heavy put skew (+5%-6.5%) for downside protection,” said Deribit Chief Commercial Officer Jean-David Pequignot in an email.
Options activity on the decentralized exchange derive.xyz painted a similar bearish picture, with the 30-day skew falling to -5.3% from -2.9%, a sign of traders increasingly paying for downside insurance, or putting options.
“Looking forward to the end of the year, there is now a large-scale concentration of BTC building around the December 26 expiration, especially at the $80k strike,” said Dr. Sean Dawson, head of research at leading options Onchain platform Derive.xyz, told Coindesk.
With ongoing concerns about the stability of the US job market and the possibility of a December rate cut slipping to barely more than a coin toss, there is very little in the macro backdrop that gives traders a reason to remain bullish at the end of the year, Dawson explained.
What’s Next?
While the path of least resistance appears to be on the downside, selling could easily run out of steam as technical indicators point to oversold conditions and sentiment is at bearish extremes.
“With an index of fear and greed around 15 and an RSI close to 30 (oversold but not yet extreme), whale wallets (> 1,000 BTC) have risen noticeably in the past week, indicating the smart accumulation of money at undervalued levels,” said Pequignot.
“In general, the fears of the downside are justified in the short term and the path of least resistance remains lower for now, but an extreme setup like this will reward the bold in the crypto past,” he added.
