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Analysts report that the distribution of Bitcoin options open interest reveals a growing demand for downside protection. The implied volatility of short-dated Bitcoin options suggests an anticipation of near-term price volatility.
Following Bitcoin’s recent price correction, traders’ demand for downside protection has surged, as evidenced by an increase in put options. Deribit data shows that the put-call ratio for bitcoin options open interest ahead of this Friday’s weekly expiry has risen above one, which is considered a bearish market signal. A ratio above one indicates significantly more put options than call options are being traded, suggesting more investors are betting on or hedging against a price decline rather than an increase.
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According to Deribit data, the largest cluster of options open interest for Friday’s expiry consists of puts at a strike price of $58,000. Significant concentrations of puts are also found at the $52,000 and $48,000 strike prices.
“An increase in bitcoin options open interest is largely driven by an increase in relative put open interest, consistent with the asset’s recent price correction,” noted the ETC Group report on Monday. It highlighted that bitcoin options traders are increasing their downside bets and hedges. The report also pointed to a spike in put-call volume ratios and one-month 25-delta option skew as indicators of a significant increase in demand for downside protection.
The ETC Group report added that bitcoin options implied volatility has risen during the latest price decline. The implied volatility of one-month at-the-money bitcoin options is currently around 50.5%. The term structure of volatility is now inverted, with short-dated options trading at significantly higher implied volatilities than longer-dated options. This inversion is typically a sign of overextended bearishness in the options market, according to the analysts.
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