Bitcoin’s Rally Sparks Option Frenzy
Bitcoin’s recent surge to nearly $31,000 has led to a surge in demand for bullish bets, as traders scramble for bitcoin calls in the options market. The cryptocurrency’s price reached a two-month high on Wednesday, generating excitement and renewed interest from institutional investors eyeing bitcoin exchange-traded funds (ETFs) proposed by major players such as BlackRock, WisdomTree, and Invesco.
Options Market Sees Significant Activity
As the market trajectory swiftly changed from the previous week’s dip below $25,200, traders have turned to options to participate in the rally. On Wednesday, major exchanges, including Deribit, witnessed a staggering $3.3 billion worth of bitcoin options contracts changing hands. This notable surge in notional volume marks the highest single-day activity in the options market in three months, with Deribit accounting for over 80% of the global tally.
Call Options in Demand
Investors have shown particular interest in buying call options, which give them the right to purchase the underlying asset at a predetermined price on a future date. Calls at strike prices such as $30,000, $31,000, $32,000, and $40,000 have gained popularity among traders seeking leveraged bullish positions. Within the past week, call spreads have accounted for 45% of total block flows, indicating significant activity in the options market.
Call Overwriters React to Price Rally
The recent price rally has compelled call overwriters to buy back their bullish exposure. Call overwriting involves selling calls against owned cryptocurrencies and is a strategy commonly used to generate additional yield in a flat or negative market. Given the rapid upward movement, traders have been actively buying back topside positions, responding to the market shift.
Bitcoin Volatility Index Surges
The surge in demand for options has propelled Deribit’s bitcoin volatility index, DVOL, to 59.24, the highest level since early April. DVOL measures Bitcoin’s 30-day implied volatility, reflecting investors’ expectations of price turbulence over a specific period. Interestingly, Deribit’s DVOL tends to rise when prices are on an upward trajectory. In contrast to traditional markets where volatility usually increases during risk-averse periods.
Reacting to Market Headlines
The recent headlines and the past three days’ spot price movements have caused the DVOL to reactively increase. Over the past two months, bitcoin’s price was relatively contained, resulting in low realized volatility. As the market adjusts to the upward momentum, participants are scrambling to adjust their positions. Leading to increased options activity and volatility.
Conclusion: Options Market Reflects Bitcoin’s Rally
Bitcoin’s rally to a two-month high has ignited a surge in options trading. With traders seeking bullish positions through call options. The notable increase in options activity and demand has influenced volatility levels. Creating opportunities for market participants to adjust their positions accordingly. As bitcoin’s price continues to evolve, the options market remains an area. To watch for potential opportunities and market sentiment indicators.