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Bitcoin has performed positively over the past 24 hours on comments from Tesla CEO Elon Musk that the electric car maker will accept crypto transactions provided there is reasonable use of clean energy by miners.
Still, the move to 2.5-week highs above $ 39,000 has failed to allay market fears. This is evident from a chart known as the ‘options smile’, which shows relatively higher implied volatility or option demand at strike prices below the current market price of bitcoin than implied volatility. higher exercise options.
The unique structure speaks of extreme fears and continued demand for declining hedges, as trader and analyst Alex Kruger tweeted. Put simply, investors continue to buy put options in anticipation of a deeper price drop.
Related: Market Wrap: Bitcoin Maintains ‘Musk Jump’ As Crypto Sentiment Improves
The options smile, a U-shaped chart resembling a smiley emoticon, is created by plotting implied volatilities against options at various strike prices expiring on the same date. Implied volatility is investors’ expectations of price turbulence over a period of time. Higher implied volatility results from greater demand for options and vice versa.
Options are hedging instruments that give the buyer the right but not the obligation to buy or sell an underlying asset at a predetermined price on or before a specific date. A call option represents the right to buy and the right to sell.
The options smile for the June 15th and 18th expirations plotted by the Genesis analysis platform Volatility is quite high with strikes well below the current price of bitcoin and relatively stable on the high side. The subsequent deadlines scheduled for June 25, July 2 and July 30 show similar structures.
The steeper slope on lower strikes reflects fears of a sell-off and the flatter slope on the right end shows that market participants expect rallies, if any, to be gradual.
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Related: Bitcoin and Ether Price Indicators Support Short-Term ‘Relief Rally’
Arguably, the steeper slope of lower strike prices could come from increased demand for call options or bullish bets compared to protective puts. However, put-call biases, which measure the cost of puts versus calls, suggest otherwise.
The one-week, one-month and three-month put-call biases remain anchored in positive territory, implying greater demand for both short and short-term puts. If market participants had bought in-the-money calls, or even higher (out-of-the-money) calls in large numbers, the selling bias would have been negative.
Deep-in-the-money calls – those at strike prices well below the spot – are relatively expensive and eliminate the low risk and high reward advantage provided by higher strike price calls. As such, in calls, hedging / trading activity is almost always focused on strike prices just below the spot price, near the spot price and above the spot price, while in the case of puts, activity is mostly observed in exercises near and below the spot price. the price. This also appears to be the case with bitcoin.
Data from the dominant exchange Deribit tracked by the Switzerland-based platform Laevitas shows a relatively high concentration of open interests (number of open positions) in out-of-the-money and in-the-money calls and put options at price. reduced.
While the market remains cautious in the short term, the long term bias appears to be bullish. The volatility smile for December 31 expiration options bears a steep slope for higher strikes.
Also read: Bitcoin at $ 200,000 by the end of the year? Some crypto options traders are making this bet
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