In a market marked by choppy price action and uncertainty, major traders of major cryptocurrencies are quietly going their separate ways.
While bitcoin investors prepare for volatility with non-directional options, some traders are betting on the opposite, the latest block trades on crypto options exchange Deribit show.
Over the past week, strangles accounted for 16.9% of bitcoin option blocks traded on the platform, while straddles accounted for 5%. Both are non-directional volatility strategies that bet on significant price movements, whether up or down. XRP traders, on the other hand, shorted strangles, effectively betting against increased volatility.
A strangle involves buying out-of-the-money (OTM) call and put options with the same expiration but different strike prices equidistant from the spot price, offering a cost-effective way to take advantage of large swings. For example, if the spot price is $104,700, then the simultaneous purchase of the $105,000 call and $104,400 put constitutes a long choke.
A straddle involves buying at-the-money call and put options at the same strike price, resulting in a higher initial cost but greater sensitivity to volatility.
Both strategies may lose the premiums paid if the expected volatility does not occur. 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, these non-directional BTC strategies together exceed 20% of total block flows, an unusually high number.
“This suggests a market struggling with uncertainty, with traders anticipating significant price moves but remaining unsure of the direction,” Strijers told CoinDesk.
Block option trades are large, privately negotiated transactions involving significant volumes of option contracts, typically executed outside the open market to minimize their impact on price. Primarily executed by institutional investors or large traders, they enable the discreet execution of significant positions without triggering market volatility or prematurely revealing trading intentions.
The preference for non-directional strategies underscores why the crypto options market has flourished: It allows traders to speculate on volatility alongside price direction, facilitating more effective risk management.
Deribit’s BTC options market is worth over $44 billion in theoretical open interest, offering crypto traders the most liquid opportunity to hedge risk and speculate.
The ether The market is worth over $9 billion and has shown a bias for a put diagonal spread over the past week.
It is best categorized as a directional-to-neutral strategy that benefits from time (theta) decay while having a positive exposure to implied volatility. In other words, while it is not strictly a volatility game, volatility does play a role in its profit potential.
In ETH’s case, straddles and strangles cumulatively accounted for just over 8% of total block flow over the past week.
Bet on XRP rangeplay
Deribit’s XRP options market remains relatively small with a theoretical open interest of around $67.6 million. Block trades are rare, but tend to be large enough to capture the market’s attention when they occur.
For example, on Wednesday a short choke trade on XRP was executed over the OTC desk at Paradigm and subsequently booked on Deribit. The trade involved the sale of 40,000 contracts each of the $2.2 call and $2.6 put options expiring on November 21, representing 80,000 XRP at an average premium of 0.0965 USDC.
A short choke is a bet on volatility compression, and the trader behind the short choke is betting that macro jitters are priced in, according to Deribit’s Asia business development manager Lin Chen.
“Crypto volatility remains broadly elevated amid a broader risk-off sentiment driven by macro uncertainty, including the US government shutdown and reopening dynamics as well as expectations around a December interest rate cut,” Chen said in an interview. “XRP’s implied at-the-money volatility has risen over 80%, reflecting this increased uncertainty.
“The dealer is effectively betting that these macro risks are now fully priced in. Their view is that XRP will remain range-bound between $2.2 and $2.6, and the yield from selling the choke looks particularly attractive,” Chen added.
Shorting a choke can be an expensive strategy if volatility rises unexpectedly, potentially leading to unlimited losses as the underlying price moves sharply beyond the strike prices.
Because of this significant risk, short chokes are generally considered high-risk trades unsuitable for most retail investors unless they have robust risk management and a high tolerance for potential moves.
