Bitcoin The derivatives market is signaling stability in a wide range, rather than a big moonshot or a violent crash.
Activity in options listed on Deribit shows strong support around $85,000 from heavy selling (writes) or traders offering insurance against price declines below that level.
At the same time, some traders offer protection against bullish price movements beyond the $95,000 to $100,000 levels by writing call options at these levels, thereby creating resistance, according to data tracked by market maker Wintermute.
Therefore, volatility could remain contained within this range as both put and call option sellers collect premiums for option sales.
“Strong put selling support around 85,000 (then 80,000/75,000 as secondary buffers), while call overwrites have an upside cap around 95,000-100,000. Volume is being harvested within this band,” Wintermute desktop strategist Jasper De Maere said in an email.
Putting up the sale builds an apartment.
Put options are contracts that pay if the underlying asset falls below a set price on or before a specific date. Therefore, traders selling the $85,000 strike put reflect confidence that BTC will not fall below that level, at least in the short term.
When a large number of traders mass sell puts at a specific level, a self-fulfilling support is often created.
In the case of BTC, the $85,000 put option is the second most popular option among all expirations, with notional open interest of over $2 billion at the time of this publication. Notional open interest refers to the dollar value of the number of active contracts at any given time. On Deribit, one options contract represents one BTC.
If prices approach that level, sellers will likely buy BTC on the spot or futures market, creating support.
Call Override Creates Resistance
At the higher end, bitcoin holders are selling call options against their long spot positions between $95,000 and $100,000. These “overwrites” generate income in the form of a premium received for providing insurance against upward price movements, but force sellers to deliver bitcoins if prices rise above those levels.
The result: These call sellers could add selling pressure to the spot market if prices approach $100,000, making it difficult to break out.
Therefore, increased interest in selling the $100,000 strike option suggests limited enthusiasm for a quick six-figure rally. At the time of writing, the $100,000 call was the most popular play with notional open interest of $2.37 billion.
Picking volatility at play
“Volume is being harvested,” De Maere said, referring to traders who sell both puts and calls to earn out-of-pocket premiums. Basically, the strategy generates returns by betting on decreasing volatility, hence the name “volatility harvesting.”
These options steadily lose value and expire worthless if bitcoin continues to trade sideways, allowing sellers to keep the full premiums received.
At the time of this publication, BTC changed hands at $87,400, according to data from CoinDesk.
