Bitcoin options have flipped the script with a complete 180-degree shift from last year’s uber bullish bet to a sharply bearish stance.
Since late last year, traders have been aggressively chasing bullish moves by piling call options at strikes of $100,000, $120,000 and $140,000 on Deribit. Until recent weeks, the $140,000 call was the most popular on Deribit, with nominal open interest (OI), or the dollar value of the active contracts, consistently above $2 billion.
Now that has changed. The $140,000 call’s open interest is $1.63 billion. Meanwhile, the $85,000 put has taken the lead with $2.05 billion in open interest. Puts at $80,000 and $90,000 strikes also now overshadow the $140,000 call.
It’s clear that sentiment has turned decidedly bearish, and it’s no surprise since BTC’s price has collapsed over 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 buyer is implicitly bearish on the market and seeks to profit from or hedge 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. It is clear that OI is stacked on lower strike puts, the so-called out-of-the-money put options.
While active calls are still significantly higher than puts, the latter trade at a significant premium (or skew), reflecting downside fears.
“Options reflect caution heading into year-end. Short-term puts with strikes of $84K to $80K have seen the largest trading volumes today. Front-end implied volatility is around 50% and the curve shows a strong put bias (+5%-6.5%) for downside protection,” Deribit Chief Commercial Officer Pequignot-D said in an email.
Options activity on decentralized exchange Derive.xyz paints a similar bearish picture, with the 30-day skew falling to -5.3% from -2.9%, a sign that traders are increasingly paying up for downside insurance or put options.
“Looking ahead to the end of the year, there is now a significant concentration of BTC positions around the December 26 expiration, particularly at the $80,000 strike,” said Dr. Sean Dawson, head of research at leading onchain options platform Derive.xyz, told CoinDesk.
With lingering concerns about the resilience of the US labor market and the likelihood of a December rate cut falling short of a coin toss, there is little in the macro backdrop to give traders a reason to remain optimistic into the end of the year, Dawson explained.
So what?
While the path of least resistance appears to be on the downside, selling may soon run out of steam as technical indicators point to oversold conditions and sentiment is in bearish extremes.
“With a Fear & Greed index around 15 and an RSI approaching 30 (oversold but not yet extreme), whale wallets (>1,000 BTC) have rallied significantly in the past week, suggesting that smart money accumulation at understated levels is understated,” Pequignot said.
“Overall, fears of downside justification are short-term and the path of least resistance remains lower for now, but extreme setups like this have rewarded the bold in crypto’s past,” he added.
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