bitcoin options

Bitcoin’s bull move might not be over yet — Here are 3 reasons why

October 30, 2023 Coin Telegraph

Bitcoin options market positioning and BTC’s daily chart suggest another bull move could be in the making.

The bullish momentum that propelled Bitcoin (BTC) price to a year-to-date high continues into its third week as the price presses toward the $35,000 handle.

Some notable developments that back the current bullish momentum are:

The forming a golden cross between the 50-day moving average and 200-day moving average on the daily timeframe.

Liquidity maps from DecenTrader and Kingfisher highlighting the potential for a short squeeze between the $36,300 and $40,000 range if Bitcoin price manages to blitz the $36,300 level.

Still a good amount of liquidity for #bitcoin between current price all the way up to $39,500.

Track it here: https://t.co/s1yivlKw5D pic.twitter.com/2i09F7Z9We
— Decentrader (@decentrader) October 26, 2023

Options market data highlighting a shift in investors’ sentiment and positioning.

Bitcoin’s options data appears confluent with the perspective that further price upside could be in store and suggests a potential extension of last week’s gamma event culminating with BTC price rallying to $35,280. The data also shows the possibility for a gamma event in the $35,000 to $40,000 range, and investor positioning has shifted accordingly.

In the past week, daily option volumes across the derivatives market surged, leading The Big Picture podcast host Joe Kruy to say:

“Paradigm had its best day ever by 70%, in terms of volume.”

*Paradigm daily option volumes (USD). Source: Paradigm*

Adding to the conversation on the Bitcoin options market, Kelly Greer, Head of America Sales at Galaxy said:

“The flows that we’ve seen reflect everything that is illustrated here and what’s in the market in the listed space. An uptick month over month from Q3 to Q4, interest in the calls that we’ve been highlighting and as we started highlighting this short gamma, the noticeable difference between Bitcoin and ETH in early October, actually was the first time we started talking about this. It was incredible to see that play out once we got the catalyst for spot to break out over its range and see the chasing in spot. And see spot settle down in the mid $30; from when we started talking about it, it was mid-$25s. We’ve seen interest in upside now that vol is higher and calls skews are a little elevated. Seeing those strikes roll out so that peak gamma at the time when we discussed this in early October was around $32K and now it's around $36K to $40K.”

From the perspective of technical analysis, traders are eyeballing the bull pennant pattern, which has formed on the daily timeframe, along with the birth of a golden cross.

*BTC/USDT 1-day chart. Source:* *TradingView*

In the short-term, the catalyzing move to be on the watch for is whether or not a price move through the $36,300 level leads to escalating pressure on shorts, and if this triggers a rapid uptick in spot buying volumes as options and perpetual futures traders are forced to cover their positions or face liquidation.

Essentially, one would see aggregated short liquidations surge as spot volumes peak, a process that is documented in the chart below.

*BTC/USDT at Binance Futures. 12 hour chart. Source: Velo*

According to Alex Thorn, Head of Firmwide Research at Galaxy, “the Bitcoin gamma squeeze from last week could happen again if BTC/USD moves higher to $35,750 - $36K.”

Thorn explained that:

“Options dealers will need to buy $20 million in spot BTC for every 1% upside move, which could cause explosiveness if we begin to move up towards those levels.”

*Total dealer gamma at Spot BTC levels. Source: Galaxy*

*Explanation of gamma in the BTC options market. Source: Alex Thorn / X*

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Will Bitcoin price hold $26K ahead of monthly $3B BTC options expiry?

September 27, 2023 Coin Telegraph

Bitcoin

Bitcoin trading volumes at a five-year low and the S&P 500 reaching its lowest levels in over three months could spell trouble for BTC bulls.

The upcoming $3 billion in Bitcoin (BTC) monthly options expiration on Sept. 29 could prove pivotal for the $26,000 support level.

BTC price faces serious headwinds

On one side, Bitcoin’s recognition in China appears to be strengthening, following a judicial report from a Shanghai Court that acknowledged digital currencies as unique and non-replicable.

Conversely, Bitcoin’s spot exchange trading volumes have dwindled to a five-year low, according to on-chain analytics firm CryptoQuant. Analyst Cauê Oliveira pointed out that a significant factor behind this decline in trading activity is the growing fear surrounding the macroeconomic outlook.

Despite the increase in long-term holders, the reduced trading volume poses a risk in terms of unexpected volatility. This means that price swings resulting from liquidations in derivative contracts could potentially cause structural market damage if there aren’t enough active participants.

Furthermore, there is growing unease among traditional financial institutions when it comes to handling crypto-related payments.

JPMorgan Chase, the largest bank in North America, is reportedly prohibiting transfers “related to crypto assets” within its retail division, Chase. The stated rationale is to protect against potential involvement in fraudulent or scam activities.

Lastly, Bitcoin holders are feeling apprehensive as the Dollar Strength Index (DXY), a measure of the dollar’s strength against other currencies, reached 106 on Sept. 26, its highest level in 10 months.

Historically, this index exhibits an inverse correlation with risk-on assets, tending to rise when investors seek safety in cash positions.

Bitcoin bulls too optimistic?

The open interest for the Sep. 29 options expiration currently stands at $3 billion. However, it is expected that the final amount will be lower due to bullish expectations of Bitcoin’s price reaching $27,000 or higher.

The unsuccessful attempt to break above $27,200 on Sept. 19 may have contributed to overconfidence among Bitcoin investors.

The 0.58 put-to-call ratio reflects the imbalance between the $1.9 billion in call (buy) open interest and the $1.1 billion in put (sell) options.

However, if Bitcoin’s price remains near $26,300 at 8:00 am UTC on Aug. 25, only $120 million worth of the call (buy) options will be available. This difference happens because the right to buy Bitcoin at $27,000 or $28,000 is useless if BTC’s price is below this level on expiry.

Bitcoin bears eye sub-$26,000 for max profit potential

Below are the four likeliest scenarios based on the current price action. The number of options contracts available on Sept. 29 for call (buy) and put (sell) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit.

This crude estimate disregards more complex investment strategies. For instance, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price. Unfortunately, there’s no easy way to estimate this effect.

Between $25,000 and $26,000: 1,400 calls vs. 19,300 puts. The net result favors the put instruments by $430 million.
Between $26,000 and $27,000: 6,200 calls vs. 12,600 puts. The net result favors the put instruments by $170 million.
Between $27,000 and $27,500: 9,900 calls vs. 10,100 puts. The net result is balanced between call and put options.
Between $27,500 and $28,000: 12,000 calls vs. 8,900 puts. The net result favors the call instruments by $85 million.

It’s worth noting that for the bulls to level the playing field ahead of the monthly expiration, they need to achieve a 3.2% price increase from $26,200. In contrast, the bears only need a modest 1% correction below $26,000 to gain a $430-million advantage on Sept. 29.

Given that Bitcoin traded below the $26,000 support level between Sept. 1 and Sept. 11, it wouldn’t be surprising if this level were breached again as the options expiration approaches. Moreover, investor sentiment is becoming increasingly risk-averse, as evidenced by the S&P 500 dropping to its lowest level since June.

Consequently, unless there is significant news or an event that strongly favors Bitcoin bulls, the likelihood of BTC’s price breaking below $26,000 by Sept. 29 remains high.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Bitcoin options strategy: How to trade July’s Q2 earnings

July 3, 2023 Coin Telegraph

Analysis

Professional traders can hedge their Bitcoin bets using the iron condor options strategy as Q2 earnings' season comes into play.

The stock market can offer valuable insights into possible Bitcoin (BTC) price movements as a big potential trigger is expected this month.

Q2 earnings' numbers due this month

Notably, Q2 earnings' numbers are expected from some of the largest companies in the world in July, including:

UnitedHealth, Citigroup and JPMorgan on July 14;
Bank of America and Morgan Stanley on July 18;
Tesla, Google, Apple, Meta, Microsoft and Amazon before July 27.

The S&P 500 companies account for an aggregate $36.5 trillion in market capitalization, so it makes sense to expect a positive impact on Bitcoin’s price if the earnings season sustains modest growth.

In other words, investors’ appetite for risk-on assets will increase if the odds of an imminent recession are reduced.

Leverage to be avoided given the level of uncertainty

Traders who have been calling for a global economic slowdown will have a chance to profit if those companies fail to deliver earnings growth, further adding uncertainty to the economies. Governments rely heavily on taxes, both from companies and from consumers, so a weak earnings season represents a serious threat.

Investors are concerned that companies profitability could decline due to the unprecedented tightening of monetary policy by the U.S. Federal Reserve and macroeconomic concerns. Businesses are being forced to reduce hiring and use cost-cutting strategies due to persistent inflation.

Still, the U.S. economy has displayed resilience, as evident by the latest 0.3% retail sales growth month-over-month in May, while economists had been expecting a decline. The retail results demonstrated that decreasing oil prices may be allowing consumers to spend more money on other goods.

Such a scenario explains why professional traders have been using the bullish "iron condor" strategy to maximize gains with limited risk if Bitcoin trades above $31,550 in July.

Using Bitcoin options for a bullish but hedged strategy

Buying Bitcoin futures pays off during bull markets, but the issue lies in dealing with liquidations when BTC’s price goes down. This is why professional traders use options strategies to maximize their gains and limit their losses.

The skewed iron condor strategy can yield profits above $31,550 by the end of July while limiting losses if the expiry price is below $31,000.

It is worth noting that Bitcoin traded at $30,520 when the pricing for this model took place.

*Bitcoin options iron condor strategy returns. Source: Deribit Position Builder*

The call option gives its holder the right to acquire an asset at a fixed price in the future. For this privilege, the buyer pays an upfront fee known as a premium.

Meanwhile, the put option allows its holder to sell an asset at a fixed price in the future, which is a downside protection strategy. On the other hand, selling a put offers exposure to the upside in prices.

The iron condor consists of selling the call and put options at the same expiry price and date. The above example has been set using the July 28 contracts, but it can be adapted for other timeframes.

Modest 3% Bitcoin price gain needed for profits

As depicted above, the target profit range is $31,550 (3% above the current price) to $38,000 (24.5% above the current price).

To initiate the trade, the investor needs to short (sell) 1.5 contracts of the $33,000 call option and three contracts of the $33,000 put option. Then, they must repeat the procedure for the $36,000 options, using the same expiry month.

Buying 4.8 contracts of the $31,000 put option to protect from an eventual downside is also required. Lastly, one needs to purchase 3.7 contracts of the $38,000 call option to limit losses above the level.

This strategy’s net profits peak at 0.206 BTC ($6,290 at current prices) between $33,000 and $36,000, but they remain above 0.087 BTC ($2,655 at current prices) if Bitcoin trades in the $32,150 and $37,150 range.

The investment required to open this skewed iron condor strategy is the maximum loss (0.087 BTC, or $2,655) which will occur if Bitcoin trades below $31,000 on July 28.

The benefit of this trade is that a wide target area is covered while providing a potential 238% return versus the potential loss. In essence, it provides a leverage opportunity without the liquidation risks typical of futures contracts.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Bitcoin options: How will tomorrow’s $4.7B expiry impact BTC price?

June 29, 2023 Coin Telegraph

<div>Bitcoin options: How will tomorrow's .7B expiry impact BTC price?</div>

Analysis

Bitcoin ETF requests, miners' sell pressure, and regulatory hurdles create uncertainty for the $31,000 BTC price resistance.

The $4.7 billion Bitcoin (BTC) monthly options expiry on June 30 might play a decisive role in determining whether the $30,000 price will consolidate as long-term support and open room for further bullish momentum.

Why is Bitcoin breaking yearly highs?

Many analysts consider Bitcoin's recent breakout above $27,000 a bet on the multiple spot Bitcoin exchange-traded fund (ETF) request applications, including those of BlackRock and ARK Invest.

The news also fueled expectations for Grayscale to be able to convert its Grayscale Bitcoin Trust (GBTC) to a Bitcoin ETF.

$31,000 caps Bitcoin price gains for now

On the other hand, Bitcoin bears will try to take advantage of macroeconomic and regulatory headwinds, including exchanges implementing mandatory Know Your Customer (KYC) procedures.

On June 28, KuCoin announced the upcoming KYC system upgrade in a move to increase compliance with global Anti-Money Laundering regulations.

Moreover, there’s increasing concern over the impact of miners' sell pressure as the network hashrate reached 400 exahashes per second. The Glassnode analytics firm noted that miners sent an all-time high in BTC revenue percentage to exchanges over the past week, totaling $128 million. Curiously, the movement mimics spikes seen during the 2021 bull run as miners took profits.

Additionally, during the European Central Bank forum in Portugal, Federal Reserve (Fed) Chair Jerome Powell warned that most policymakers expect two more rate hikes this year. According to the CME FedWatch Tool, investors are pricing in 82% odds of a 25 basis point interest rate increase on July 26.

*Bitcoin four-hour price movements during option expiries. Source: TradingView*

Bitcoin price last flirted with the $31,000 level on June 27, but the resistance proved stronger than anticipated. The subsequent correction to $30,000 supports the thesis of sideways trading in the short term as investors evaluate the impacts of additional interest rate increases by the Fed.

Such a restrictive scenario for the global economy might explain why some Bitcoin traders decided to take profits, which limited the price upside.

$4.7 billion out of reach as bulls were too optimistic

The open interest for the June 30 options expiry is $4.7 billion, but the actual figure will be lower since bulls were expecting $32,000 or higher price levels. These traders got excessively optimistic after Bitcoin’s price rallied 25.5% between June 15 and June 23, testing the $31,000 resistance.

Deribit *Bitcoin options aggregate open interest for June 30. Source: Deribit*

The 0.56 put-to-call ratio reflects the imbalance between the $3.1 million in call (buy) open interest and the $1.7 million in put (sell) options.

But if Bitcoin’s price remains near $30,500 at 8:00 am UTC on June 30, only $630 million worth of these call (buy) options will be available. This difference happens because the right to buy Bitcoin at $31,000 or $32,000 is useless if BTC trades below that level on expiry.

Bitcoin bears aim for sub-$30,000 to balance the scales

Below are the four most likely scenarios based on the current price action. The number of options contracts available on June 30 for call (bull) and put (bear) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit.

Between $28,000 and $29,000: 7,200 calls vs. 16,200 puts. Bears in control, profiting $250 million.
Between $29,000 and $30,000: 13,000 calls vs. 12,600 puts. The result is balanced between put and call options.
Between $30,000 and $31,000: 1,500 calls vs. 2,100 puts. The net result favors the call instruments by $440 million.
Between $31,000 and $32,000: 3,300 calls vs. 800 puts. The net result favors the call instruments by $670 million.

This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.

For instance, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price. Unfortunately, there’s no easy way to estimate this effect.

Consequently, it will come down to whether BTC price bears are willing to risk exposure while a potential spot Bitcoin ETF approval is being analyzed by the SEC.

Although it is impossible to estimate the potential inflow or the timing of such an event, it paves the way for bulls to secure a $440 million profit by keeping Bitcoin price above $30,000 in the short term.

Bitcoin on-chain and options data hint at a decisive move in BTC price

May 30, 2023 Coin Telegraph

bitcoin options

BTC’s historically low volatility could abruptly change in June, with long-term holders making moves and options traders showing an uptick in bearish positions.

Bitcoin’s volatility has dropped to historically low levels thanks to macroeconomic uncertainty and low market liquidity. However, on-chain and options market data allude to incoming volatility in June.

The Bitcoin Volatility Index, which measures the daily fluctuations in Bitcoin’s (BTC) price, shows that the 30-day volatility in Bitcoin’s price was 1.52%, which is less than half of the yearly averages across Bitcoin’s history, with values usually above 4%.

According to Glassnode, the expectation of volatility is a “logical conclusion” based on the fact that low volatility levels were only seen for 19.3% of Bitcoin’s price history.

The latest weekly update from the on-chain analytics firm shows that Glassnode’s monthly realized volatility metric for Bitcoin slipped below the lower bounds of the historical Bollinger Band, suggesting an incoming uptick in volatility.

*Bolinger Bands for Bitcoin monthly realized volatility metric. Source: Glassnode*

Long-term Bitcoin holders metric points to a price breakout

The on-chain transfer volumes of Bitcoin across cryptocurrency exchanges dropped to historically low levels. The price is also trading near short-term holder bias, indicating a “balanced position of profit and loss for new investors” that bought coins during and after the 2021-2022 bull cycle, according to the report. Currently, 50% of new investors are in profit, with the rest in loss.

However, while the short-term holders reached equilibrium levels, long-term holders were seen making a move in the recent correction, which underpins volatility, according to the analysts.

Glassnode categorizes coins older than 155 days in a single wallet under long-term holder supply.

The gray bars in the image below show the long-term holder (LTH) binary spending indicator, which tracks whether LTH spending averaged over the last seven days is adequate to decrease their total holdings.

It shows previous instances when LTH spending increased, which was usually followed by a volatility uptick.

*Long-term holder spending binary indicator. Source: Glassnode*

Bitcoin’s recent correction saw a minor downtick in the indicator, “suggesting 4-of-7 days experienced a net divestment by LTHs, which is a level similar to exit liquidity events seen YTD.”

The analysts expect a bout of volatility to reach an equilibrium level, where the market moves primarily due to the accumulation or distribution of long-term holder supply.

Options markets reaffirm traders’ expectation of volatility

The options market data indicates a similar theory about impending volatility.

The latest options market expiry for May turned out to be a dull event, despite a major expiration of $2.3 billion in notional value. However, prolonged compression of volatility can indicate a big incoming move in terms of price.

Bitfinex’s latest Alpha report shows that the DVOL index, which represents the market’s expectation of 30-day future implied Bitcoin volatility, slipped to 45 from a reading of 50 right before the expiry, which represents a yearly low.

*The DVOL index for Bitcoin options. Source:* *Bitfinex*

Implied volatility in options refers to the market’s expectation of the future volatility of the underlying asset, as reflected in the prices of options.

Bitfinex analysts said that low expectations of volatility can occur due to “upcoming events that are expected to move the market” or “increased uncertainty or risk aversion among market participants.”

Currently, the options traders are showing risk aversion and have increased their bearish positions, moving from May to June.

The put-to-call ratio for Bitcoin options increased from 0.38 to 0.50. A higher weight of put options shows that traders are increasingly turning bearish on Bitcoin.

Analysts at Bitfinex currently expect “potential market turbulence and short-term price fluctuations” in June, especially close to the expiry toward the month’s end.

The potential price levels that can act as a magnet according to options market positioning are the maximum pain levels for May and June’s expiration at $27,000 and $24,000, respectively.

Maximum pain, also known as max pain or option pain, is a concept used in options trading and refers to the price at which the buyers incur maximum losses.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Bitcoin’s next rally may be imminent, on-chain analyst says

May 30, 2023 Coin Telegraph

Bitcoin Analysis

On-chain data shows that an imminent Bitcoin rally could drive its price up to $32,000, says Glassnode lead analyst James Check.

After a long period of unusually low volatility, Bitcoin’s (BTC) next major price move is likely imminent and could drive BTC to $32,000, according to James Check, lead on-chain analyst at Glassnode. That price level is where Bitcoin’s “true cost basis is sitting,” Check explained in an exclusive interview with Cointelegraph.

To calculate Bitcoin’s average cost basis — the average price at which BTC was bought — Check and his team removed coins that are lost forever from the calculation and focused on active Bitcoin investors.

“It’s where the mean reversion level would be, so a rally to that level, to be honest, wouldn’t surprise me,” he said.

Despite this bullish scenario, Check also pointed out that a large number of investors are likely tired of the bear market and waiting for Bitcoin to reach that level before selling, thus putting pressure on the price.

“That's an area where you start getting more resistance,” he stated.

To find out more about the chances of an upcoming Bitcoin rally, check the full interview on our YouTube channel — and don’t forget to subscribe!

Bitcoin, Ethereum bears are back in control — Two derivative metrics suggest

May 21, 2023 Coin Telegraph

bitcoin options

Given the uncertainty in the macroeconomic environment, Bitcoin price bulls have no reason to bet against a six-week descending wedge pattern.

A bearish market structure has been pressuring cryptocurrencies’ prices for the past six weeks, driving the total market capitalization to its lowest level in two months at $1.13 trillion. According to two derivative metrics, crypto bulls will have a hard time to break the downtrend, even though analyzing a shorter timeframe provides a neutral view with Bitcoin (BTC), Ether (ETH) and BNB, on average, gaining 0.3% between May 12 and May 19.

*Total crypto market cap in USD, 12-hour. Source: TradingView*

Notice that the descending wedge formation initiated in mid-April could last until July, indicating that an eventual break to the upside would require an extra effort from the bulls.

Furthermore, there’s the impending U.S. debt ceiling standoff, as the U.S. Treasury is quickly running out of cash.

Even if the majority of investors believe that the Biden administration will be able to strike a deal before the effective default of its debt, no one can exclude the possibility of a government shutdown and subsequent default.

Gold or stablecoins as a safe haven?

Not even gold, which used to be considered the world’s safest asset class, has been immune to the recent correction, as the precious metal traded down from $2,050 on May 4 to the present $1,980 level.

Circle, the company behind the USDC stablecoin, has ditched $8.7 billion in Treasuries maturing in longer than 30 days for short-term bonds and collateralized loans at banking giants such as Goldman Sachs and Royal Bank of Canada.

According to Markets Insider, a Circle representative stated that:

“The inclusion of these highly liquid assets also provides additional protection for the USDC reserve in the unlikely event of a U.S. debt default.”

The stablecoin DAI, managed by the decentralized organization MakerDAO, approved in March an increase to its portfolio holdings of the U.S. Treasuries to $1.25 billion to “take advantage of the current yield environment and generate further revenue”.

Derivatives markets show no signs of bearishness

Perpetual contracts, also known as inverse swaps, have an embedded rate that is usually charged every eight hours.

A positive funding rate indicates that longs (buyers) demand more leverage. Still, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

*Perpetual futures accumulated 7-day funding rate on May 19. Source: Coinglass*

The seven-day funding rate for BTC and ETH was neutral, indicating balanced demand from leveraged longs (buyers) and shorts (sellers) using perpetual futures contracts. Curiously, even Litecoin (LTC) displayed no excessive long demand after a 14.5% weekly rally.

To exclude externalities that might have solely impacted futures markets, traders can gauge the market’s sentiment by measuring whether more activity is going through call (buy) options or put (sell) options.

*BTC options volume put-to-call ratio. Source: Laevitas.ch*

The expiration of options can add volatility to Bitcoin’s price, which resulted in an $80-million advantage for bears in the latest May 19 expiry.

A 0.70 put-to-call ratio indicates that put option open interest lags the more bullish calls and is, therefore, bullish. In contrast, a 1.40 indicator favors put options, which can be deemed bearish.

The put-to-call ratio for Bitcoin options volume has been below 1.0 for the past couple of weeks, indicating a higher preference for neutral-to-bullish call options. More importantly, even as Bitcoin briefly corrected down to $26,800 on May 12, there was no significant surge in demand for the protective put options.

Glass half full, or investors prepping for the worst?

The options market shows whales and market makers unwilling to take protective puts even after Bitcoin crashed 8.3% between May 10 and May 12.

However, given the balanced demand on futures markets, traders seem hesitant to place additional bets until there’s more clarity on the U.S. debt standoff.

Less than two weeks remain until June 1, when the U.S. Treasury Department has warned that the federal government could be unable to pay its debts.

It is unclear whether the total market capitalization will be able to break from the descending wedge formation. From an optimistic perspective, professional traders are not using derivatives to bet on a catastrophic scenario.

On the other hand, there seems to be no rationale for th bulls to jump the gun and place bets on a speedy crypto market recovery given the uncertainty in the macroeconomic environment. So, ultimately, bears are in a comfortable place according to derivatives metrics.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Bitcoin options: How to play it when BTC price moves up or down 10%

May 8, 2023 Coin Telegraph

bank

A perfect storm is forming for higher volatility. Learn how to profit from BTC price moves on either side.

Here’s how Bitcoin (BTC) traders can profit whether its price move up or down 10% within 55 days.

Bitcoin options: Bracing for volatility

Traditional market analysts have started calling for a volatility spike due to the United States government debt discussion.

Moreover, signs of stress coming from the banking sector surprised investors after the U.S. Dollar Index (DXY), which measures the U.S. dollar against a basket of foreign currencies, reached its lowest level in 12 months at 101 on May 4.

Stock market and macro analyst Markets & Mayhem posted a chart from Deutsche Bank that correlates historical government spending and debt concerns with spikes in the stock market volatility.

Volatility could rise into a government debt debacle as the kabuki theater carries on

Source: Deutsche pic.twitter.com/fmJVKvUZvc
— Markets & Mayhem (@Mayhem4Markets) May 1, 2023

U.S. Treasury Secretary Janet Yellen has warned that the government may run out of cash by June if Congress fails to raise the debt ceiling. According to the BBC, President Joe Biden has called a meeting of congressional leaders on the issue for May 9.

Government officials said the overspending is partly due to lower-than-expected income tax receipts, which are typical of recession periods.

Volatility could impact Bitcoin price, but direction unknown

It is worth noting that the volatility indicator neither dictates whether the market has been gaining strength nor anticipates eventual crashes.

The index calculation does not account for price gains or losses, only directional changes. Thus, if the volatility reaches historically low levels, it merely reflects that the asset has displayed a low amplitude of daily price fluctuations.

*Bitcoin 40-day realized volatility. Source: TradingView*

Notice how Bitcoin’s 40-day historical volatility does not usually remain below 40% for long. That information, coupled with the traditional markets’ stress caused by the regional banking crisis and the debt ceiling discussion might be brewing the perfect storm for a sharp volatility spike.

While one can benefit from the expectation of higher volatility for the next couple of weeks, most investors are unwilling to take directional bets, meaning they have no confidence in whether the market will move up or down.

However, there is an options strategy that fits this scenario and allows investors to profit from a strong move on either side.

The reverse (short) iron butterfly is a limited-risk, limited-profit options trading strategy. It’s important to remember that options have a set expiration date, meaning the price change must happen during the defined period.

*Profit/Loss estimate. Source: Deribit Position Builder*

The option prices above were taken on May 5, with Bitcoin trading at $29,172. All options listed are for the June 30 expiry, but this strategy can also be used using a different time frame.

The suggested non-directional strategy consists of selling 9.2 BTC contracts of the $26,000 put options while simultaneously selling 12.2 call options with a $33,000 strike. To finalize the trade, one should buy 13.5 contracts of $30,000 call options and another 8 contracts of $30,000 put options.

While this call option gives the buyer the right to acquire an asset, the contract seller gets a (potential) negative exposure. To fully protect from market oscillations, one must deposit 0.90 BTC (roughly $26,250), representing the investors’ maximum loss.

Conviction is essential, as the risk-reward ratio is reversed

For this investor to profit, one needs Bitcoin’s price to be below $27,000 on June 30 (down 7.5%) or above $32,150 (up 10.2%). In essence, the trade has a hugely profitable area, but loses over twice the potential gain if Bitcoin fails to move either way considerably.

The maximum payout is 0.337 BTC (roughly $9,830), but if a trader is confident that volatility is right around the corner, a 10% move in 55 days seems quite feasible.

Notice that the investor can revert the operation before the options expiry, preferably right after a strong Bitcoin price move. All one needs to do is buy back the two options that have been sold and sell the other two that were previously bought.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

How are Bitcoin options traders positioning for the US banking crisis?

May 4, 2023 Coin Telegraph

Banks

The total crypto market cap has been ranging sideways, but Bitcoin derivatives markets indicate pro traders don't expect any major price corrections.

For the past 14 days, cryptocurrency markets have been trading within an unusually tight 7.1% range. In other words, investors are unwilling to place new bets until there’s additional regulatory clarity, especially in the United States.

The total crypto market capitalization fell by 1% to $1.2 trillion over the seven days ending May 4, primarily as a result of Bitcoin's (BTC) 1.1% price decline, Ether's (BTC) 0.2% loss, and BNB trading down 1.4%.

Notice that the exact same $1.16 trillion to $1.22 trillion total market cap range previously stood for twelve days between March 29 and April 10. The conflicting forces: regulatory uncertainty weighing it down and the banking crisis pushing prices upward are likely the reason for the lack of risk-appetite on both sides.

SEC’s crypto crackdown could backfire

The Coinbase exchange, for instance, has been battling the U.S. Securities and Exchange Commission (SEC) regarding the need for clear rules for trading digital assets. The stakes were raised after the exchange was handed a Wells notice, a "legal threat" for "possible violations of securities laws", on March 22.

However, the latest decision has been favorable to Coinbase, as the court has instructed the SEC to clarify the security rules for digital assets within ten days.

On the other hand, the banking crisis seems not to have faded after the lender PacWest Bancorp reportedly announced that it was considering a buyout. The regional financial institution held $40 billion in assets, although some 80% of the loan book is dedicated to the commercial real estate and residential mortgages — a sector that has been plagued by rising interest rates.

The recent crypto sideways trend suggests that investors are hesitant to place new bets until there’s more clarity on whether the U.S. Treasury will continue injecting liquidity to contain the banking crisis, which favors inflation and positive momentum for scarce assets.

BTC, ETH derivatives show muted demand from bears

Perpetual contracts, also known as inverse swaps, have an embedded rate that is usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

*Perpetual futures accumulated 7-day funding rate on May 4. Source: Coinglass*

The seven-day funding rate for Bitcoin and Ether was neutral, indicating balanced demand from leveraged longs (buyers) and shorts (sellers) using perpetual futures contracts. BNB was the only exception, as shorts have been paying 1.4% per week to keep their positions open indicating bearishness.

To exclude externalities that might have solely impacted futures’ markets, traders can gauge the market's sentiment by measuring whether more activity is going through call (buy) options or put (sell) options. Generally speaking, call options are used for bullish strategies, whereas put options are used for bearish ones.

The expiration of options can have a significant impact on the market, particularly if there are a large number of contracts involved. When options contracts expire, the holders of these contracts may choose to exercise their rights, which can result in buying or selling pressure on the underlying asset. This can lead to increased volatility in the price of Bitcoin, which resulted in a $575 million advantage for bulls in the latest April 28 expiry.

A 0.70 put-to-call ratio indicates that put option open interest lags the more bullish calls and is, therefore, bullish. In contrast, a 1.40 indicator favors put options, which can be deemed bearish.

The put-to-call ratio for Bitcoin options volume has been below 0.90 since April 26, indicating a higher preference for neutral-to-bullish call options. More importantly, even as Bitcoin briefly corrected down to $27,700 on May 1, there was no significant surge in demand for the protective put options.

Traders pricing low odds of a break above $1.2T

The option market shows whales and market makers unwilling to take protective puts even after Bitcoin crashed 7.8% on May 1. However, given the balanced demand on futures markets, traders seem hesitant to place additional bets until there’s clarity on whether the U.S. Treasury will continue to bailout the troubled regional bank sector.

It is unclear whether the total market capitalization will be able to break through the $1.22 trillion barrier. But one thing is for sure: professional traders are not betting on a crypto price crash given that the demand for protective puts has been muted.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Got liquidated with Bitcoin futures? Get 3.5x leverage using this options strategy

April 27, 2023 Coin Telegraph

Banking Crisis

Here is how professional traders use Iron Condor options strategies to benefit from the banking crisis and the U.S. debt ceiling increase.

Bitcoin (BTC) bulls might be disappointed after the $31,000 resistance proved stronger than expected on April 14. However, looking at a broader time frame, Bitcoin has been the best-performing asset in 2023, gaining over 74% year-to-date at $29,000.

Positioning for weaker dollar, debt ceiling

It is worth noting that gold is merely 4% behind its all-time high, likely indicating a weaker U.S. dollar as investors increase the odds of recession and further fiscal turmoil for the world’s biggest economy.

Behind the bullish price momentum for Bitcoin are the weakness in the U.S. financial system, namely the $100 billion in quarterly net withdrawals at First Republic Bank and the legislative effort to approve an increase to the urgent $31.6 billion national debt ceiling.

For Bitcoin investors, a financial crisis is a net positive as it forces the U.S. Federal Reserve to expand its emergency funding programs and take out additional unprofitable long-term debt from the system.

Cryptocurrency traders are uncomfortable with the regulatory environment, and the April 25 statement from the New York Federal Reserve further added to the uncertainty. The guidelines disclosed could potentially hinder the USD Coin (USDC) stablecoin issuer Circle’s access to the Fed’s securities reverse-repurchase program, the safest vehicle to get yield on deposits.

Unfortunately, there is no way to predict how the banking crisis will unfold or the timeline for regulatory actions against exchanges and stablecoin issuers. On the other hand, "easy money" policies are well known to every investor as extremely beneficial for scarce assets.

Such a scenario explains why professional traders have been using the bullish Iron Condor strategy to maximize gains if Bitcoin breaks above $32,000 in May with limited risk.

Call and put Bitcoin options to hedge the bet

Buying Bitcoin futures pays off during bull markets, but the issue lies in dealing with liquidations when BTC price goes down. This is why pro traders use options strategies to maximize their gains and limit their losses.

The skewed Iron Condor strategy can yield profits above $31,400 by the end of May while limiting losses if the expiry price is below $31,000. It is worth noting that Bitcoin traded at $29,730 when the pricing for this model took place.

The call option gives its holder the right to acquire an asset at a fixed price in the future. For this privilege, the buyer pays an upfront fee known as a premium.

Meanwhile, the put option allows its holder to sell an asset at a fixed price in the future, which is a downside protection strategy. On the other hand, selling this instrument (put) offers exposure to the price upside.

The Iron Condor consists of selling the call and put options at the same expiry price and date. The above example has been set using the May 26 contracts, but it can be adapted for other timeframes.

Modest 6% Bitcoin price gain needed for profits

As depicted above, the target profit area is $31,420 (6% above the current $29,730 price) to $36,000 (21.2% above the current price). To initiate the trade, the investor needs to short (sell) 1.5 contracts of the $33,000 call option and 3 contracts of the $33,000 put option. Then, the buyer must repeat the procedure for the $35,000 options, using the same expiry month.

Buying 4.8 contracts of the $31,000 put option to protect from an eventual downside is also required. Lastly, one needs to purchase 7.8 contracts of the $36,000 call option to limit losses above the level.

This strategy’s net profits peak at 0.225 BTC ($6,685 at current prices) between $33,000 and $36,000, but they remain above 0.063 BTC ($1,750 at current prices) if Bitcoin trades in the $31,850 and $35,700 range.

The investment required to open this skewed Iron Condor strategy is the maximum loss — 0.063 BTC or $1,750 — which will occur if Bitcoin trades below $31,000 on May 26.

The benefit of this trade is that a wide target area is covered while providing a 357% return versus the potential loss. In essence, it provides a leverage opportunity without the liquidation risks typical from futures contracts.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

BTC price faces serious headwinds

Bitcoin bulls too optimistic?

Bitcoin bears eye sub-$26,000 for max profit potential

Q2 earnings' numbers due this month

Leverage to be avoided given the level of uncertainty

Using Bitcoin options for a bullish but hedged strategy

Modest 3% Bitcoin price gain needed for profits

Why is Bitcoin breaking yearly highs?

$31,000 caps Bitcoin price gains for now

$4.7 billion out of reach as bulls were too optimistic

Bitcoin bears aim for sub-$30,000 to balance the scales

Long-term Bitcoin holders metric points to a price breakout

Options markets reaffirm traders’ expectation of volatility

Gold or stablecoins as a safe haven?

Derivatives markets show no signs of bearishness

Glass half full, or investors prepping for the worst?

Bitcoin options: Bracing for volatility

Volatility could impact Bitcoin price, but direction unknown

Conviction is essential, as the risk-reward ratio is reversed

SEC’s crypto crackdown could backfire

BTC, ETH derivatives show muted demand from bears

Traders pricing low odds of a break above $1.2T

Positioning for weaker dollar, debt ceiling

Call and put Bitcoin options to hedge the bet

Modest 6% Bitcoin price gain needed for profits

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