bitcoin Options have flipped the script with a complete 180-degree turn from last year’s super bullish bets to a sharply bearish stance.
Since late last year, traders were aggressively pursuing bullish moves by accumulating call options with strike prices of $100,000, $120,000, and $140,000 on Deribit. Until recent weeks, the $140,000 call option was the most popular on Deribit, with notional open interest (OI), or the dollar value of active contracts, consistently above $2 billion.
Now, that has changed. The open interest on the $140,000 call amounts to $1.63 billion. Meanwhile, the $85,000 put has taken the lead with $2.05 billion in open interest. The $80,000 and $90,000 strike price options also now eclipse the $140,000 call option.
Clearly, sentiment has turned decidedly bearish, and it’s not surprising, as the price of BTC has plummeted 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 option buyer is implicitly bearish on the market and seeks to profit or protect against expected price declines in the underlying asset. A call buyer is bullish.
The chart shows the distribution of open interest in BTC options at various strike price levels across expirations. Clearly, OI is accumulating into lower strike puts, so-called out-of-the-money puts.
While the number of active calls is still notably higher than those of puts, the latter are trading at a significant premium (or bias), reflecting bearish fears.
“Options reflect caution heading into the end of the year. Short-term puts with strikes between $84,000 and $80,000 have seen the highest trading volumes today. Initial implied volatility is around 50%, and the curve shows a strong put bias (+5%-6.5%) for downside protection,” Deribit Chief Trading Officer Jean-David Pequignot said in an email.
Options activity on decentralized exchange Derive.xyz paints a similar bearish picture, with the 30-day bias falling to -5.3% from -2.9%, a sign that traders are increasingly paying more for downside insurance or puts.
“Looking ahead to the end of the year, there is now a considerable concentration of BTC call options being built around the December 26 expiry, particularly at the $80,000 strike,” Dr. Sean Dawson, head of research at leading on-chain options platform Derive.xyz, told CoinDesk.
With ongoing concerns about the resilience of the U.S. labor market and the likelihood that a rate cut in December will fall just short of a currency toss, there is very little in the macro backdrop to give traders a reason to remain optimistic through the end of the year, Dawson explained.
What’s next?
While the path of least resistance appears to be downward, selling could soon lose steam as technical indicators point to oversold conditions and sentiment is at bearish extremes.
“With a Fear and Greed index around 15 and an RSI close to 30 (oversold but not yet extreme), whale portfolios (>1,000 BTC) have risen noticeably in the last week, suggesting smart money accumulation at undervalued levels,” Pequignot said.
“Overall, downside fears are justified in the near term and the path of least resistance remains lower for now, but extreme setups like this have rewarded the bold in the crypto past,” he added.
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