In a market characterized by choppy price action and uncertainty, large operators of major cryptocurrencies are quietly taking divergent paths.
While bitcoin Investors are preparing for volatility with non-directional options plays, some Traders are betting the opposite, recent block trades on crypto options exchange Deribit show.
Over the past week, strangles accounted for 16.9% of bitcoin options blocks traded on the platform, while straddles accounted for 5%. Both are non-directional volatility strategies, betting on significant price movements, either up or down. XRP traders, on the other hand, shorted, effectively betting against higher volatility.
A strangle involves purchasing out-of-the-money (OTM) call and put options with the same expiration but different strike prices equidistant from the spot price, offering a profitable way to profit from large swings. For example, if the spot price is $104,700, then simultaneously purchasing the $105,000 call and the $104,400 put constitutes a long strangle.
A combination involves purchases of calls and puts at the same strike price, resulting in a higher initial cost but greater sensitivity to volatility.
Both strategies may lose premiums paid if the expected volatility does not materialize. Note that the bet here is on volatility and does not necessarily imply a bullish or bearish price outlook.
According to Deribit CEO Luuk Strijers, together these non-directional BTC strategies exceed 20% of the total block flow, an unusually high figure.
“This suggests a market facing uncertainty, where traders anticipate significant price movements but remain unsure of the direction,” Strijers told CoinDesk.
Block options trades are large, privately negotiated transactions involving significant quantities of options contracts, typically executed outside the open market to minimize their impact on price. They are mainly carried out by institutional investors or large traders and allow the discreet execution of important positions without causing market volatility or revealing trading intentions prematurely.
The preference for non-directional strategies underlines why the crypto options market has been flourishing: it allows traders to speculate on volatility along with price direction, facilitating more efficient risk management.
Deribit’s BTC options market is worth over $44 billion in terms of notional open interest, offering cryptocurrency traders the most liquid avenue to hedge risks and speculate.
the ether The market is worth over $9 billion and has trended in favor of a diagonal selling spread over the past week.
This is best categorized as a directional to neutral strategy that benefits from time decay (theta) while also having positive exposure to implied volatility. In other words, while it is not purely a volatility game, volatility does influence your profit potential.
In the case of ETH, crossovers and chokes cumulatively accounted for just over 8% of the total block flow over the past week.
Bet on XRP Rank Game
Deribit’s XRP options market remains relatively small, with theoretical open interest of around $67.6 million. Block transactions are rare, but they tend to be large enough to capture the market’s attention when they occur.
For example, on Wednesday, a short squeeze trade on XRP was executed on Paradigm’s OTC desk and subsequently recorded on Deribit. The trade involved the sale of 40,000 contracts, each of $2.2 calls and $2.6 puts expiring on November 21, representing 80,000 XRP with an average premium of 0.0965 USDC.
A short strangle is a bet on volatility compression and the trader behind the short strangle is betting that macro jitters are priced in, according to Deribit’s head of Asia business development Lin Chen.
“Cryptocurrency volatility remains generally elevated amid broader risk-off sentiment driven by macroeconomic uncertainties, including U.S. government shutdown and reopening dynamics, as well as expectations around a rate cut in December,” Chen said in an interview. “XRP’s at-the-money implied volatility has increased above 80%, reflecting this increased uncertainty.
“The trader is effectively betting that these macroeconomic risks are now fully priced in. His view is that
Shorting a choke can be an expensive strategy if volatility increases unexpectedly, which could lead to unlimited losses as the underlying price moves sharply above the strike prices.
Because of this significant risk, short strangles are generally considered high-risk trades that are not suitable for most retail investors unless they have strong risk management and a high tolerance for potential drawdowns.
