Bitcoin (BTC) options are now looking cheap and some traders are taking advantage of this to raise 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 future date. A call option gives the right to buy and allows traders to profit from price rises or hedge against them, while a put option does the opposite.
Traders consider options cheap when implied volatility, a key determinant of option prices, slips below its long-term average or below the realized volatility of the asset. Implied volatility is the one standard deviation range of the expected movement of the underlying asset’s price over the course of a year and tends to return to the mean. Realized volatility is price movement that has already occurred.
Bitcoin’s implied volatility (IV) peaked with the launch of spot ETFs in the US last week and fell below realized volatility, leading to increased demand for calls at $45,000 and $46,000 during North American trading hours on Thursday, according to outside institutions. stock market. Cryptocurrency trading network model.
“We saw significant buying at $44K in February, and some outright buying at $45K/$46K,” Paradigm said in a Telegram broadcast. “BTC implied volatility is now trading well with unrealized volatility, so we are not surprised to see Paradigm clients playing for another sharp rise in spot price and trading volume.”
Word of buying direct calls suggests that the calls purchased were likely standalone trades, betting on renewed bullish price swings in Bitcoin and not part of a complex strategy. Since early 2023, Bitcoin price and implied volatility have been mostly positively correlated.
A rollover is a non-directional strategy that involves the simultaneous purchase of call options and put options at the same strike price. Its purpose is to profit from the expected rise in implied volatility and the resulting rise in option prices.
Bitcoin has fallen more than 15% since the ETF debuted on January 11, with prices briefly falling below $41,000 late Thursday.