Bitcoin options (BTC) are now looking favorable, and some traders are taking advantage of this to make bullish bets.
Options are derivative contracts that give the buyer the right to buy or sell the underlying asset at a predetermined price at a later date. A call gives the right to buy and allows traders to profit from or hedge against price increases, while a put option does the opposite.
Traders consider options to be cheap when implied volatility, one of the key determinants of option prices, falls below its long-term average or below the asset's realized volatility. Implied volatility is the one standard deviation range of the expected price movement of the underlying asset over one year and tends to revert to the mean. Realized volatility is the price movement that has already occurred.
Bitcoin's implied volatility (IV) peaked last week with the launch of spot ETFs in the US and fell below realized volatility, driving demand for calls at the $45,000 and $46,000 strikes during the North American market, according to over-the-counter institutions Trading hours on Thursday heated up the paradigm of the cryptocurrency trading network.
“We saw a large buyer of $44,000 straddles in February and some direct call buying at the $45,000/$46,000 strikes,” Paradigm said in a Telegram broadcast. “BTC’s implied volatility is now trading well below realized volatility, so we are not surprised to see Paradigm clients betting on a strong rebound back in spot and volatility.”
The word “direct call purchase” implies that the calls purchased were likely stand-alone trades betting on renewed upward price volatility in Bitcoin, rather than part of a complex strategy. Since the beginning of 2023, Bitcoin price and implied volatility have been mostly positively correlated.
A straddle is an undirected strategy that involves purchasing call and put options simultaneously at the same strike price. Its purpose is to profit from an expected increase in implied volatility and the resulting increase in option prices.
Bitcoin has fallen over 15% since the ETF's launch on Jan. 11, with prices briefly falling below $41,000 late Thursday.
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.