The options business appears to be the “pharma sector” of the crypto market, showing robust activity across both bullish and bearish market trends.
Take Deribit-listed bitcoin for example the options market, which continues to boom despite, or perhaps because of, the recent bearish price action. On Thursday, the number of active BTC contracts on the platform rose to a record 453,820, each representing 1 BTC. Notional open interest, which represents the dollar value of active contracts, also stood at a record $50.27 billion, according to data source Deribit Metrics.
“Despite ongoing price pressure and a recent decline in BTC’s spot price, open interest for BTC options on Deribit has risen to a new record high of around $50 billion – a record both in contract numbers and dollar terms – underscoring sustained and growing market participation,” Luuk Strijers, CEO of Deribit, told CoinDesk.
Year-to-date, open interest in contract terms has more than doubled, showing resilience as BTC fell from $110K to $75K early this year before moving to a new high above $126K earlier this month. Since then, prices have pulled back sharply to $108,000.
The inelasticity to price fluctuations can be explained by the fact that options serve more strategic purposes beyond simple directional bets, allowing traders to bet on volatility and time. This facilitates effective management of market exposure through thick and thin.
A call option gives the holder the right, but not the obligation, to buy the underlying asset at a predetermined price at a later date. A put option gives the right to sell.
Active downside protection
The recent record high in BTC open interest is marked by the growing popularity of put options, which offer protection against bearish trends.
This is evident from the $2 billion in theoretical open interest in the $100,000 strike, making it almost as popular as the $120,000 and $140,000 strike calls. The $100,000 put represents a bet that BTC’s spot price will fall below this level.
“Unlike previous records, this new OI milestone features a remarkable concentration of open interest around the 100,000 strike, highlighting active downside hedging by market participants. At this single strike, Deribit shows more than 19,000 open contracts representing over USD 2 billion in notional value,” said Strijers.
He explained that puts continue to trade at a premium to calls, although the relative richness of puts has fallen in recent days as some traders chase higher strike out-of-the-money calls.
“Despite dominant bearish positioning, the past 24 hours also reveal signs of renewed optimism. Although put OI has increased at key downside strikes, there is notable call activity building around 120,000 and above, suggesting traders are positioning for potential upside volatility or gamma exposure,” Strijers noted.
