Bitcoin Traders Use $9 Billion Options Market to Hedge Against Price Drops

Bitcoin traders are increasingly engaging in cash-secured put selling, indicating bullish market expectations. The cumulative delta of BTC options and ETF links has reached $9 billion, emphasising sensitivity to price movements. Despite market volatility, traders maintain long-term bullish strategies while actively managing risk exposure through hedging.

Bitcoin traders are increasingly engaging in cash-secured put selling via stablecoins, signalling bullish expectations. This method, similar to providing insurance, involves traders selling put options and securing funds to potentially purchase BTC at a predetermined higher price if the market declines. As a result, they earn premiums while possibly accumulating bitcoin, thus expressing long-term bullish sentiments.

Deribit’s Asia Business Development Head, Lin Chen, noted this trend, highlighting its role in a more mature strategy for BTC accumulation. Traders are also selling higher strike call options to generate yields on their holdings. This has resulted in a significant drop in Deribit’s DVOL index, which measures BTC’s 30-day implied volatility, from 63 to 48 post-market turmoil.

Bitcoin’s price recovery to over $92,000 is attributed to haven demand and institutional adoption. Consequently, the options market has demonstrated increased interest in call options, with traders recently favouring calls with strike prices of $95,000, $100,000, and $135,000. The most popular option on Deribit is the $100,000 strike call, boasting a notional open interest exceeding $1.6 billion.

The cumulative delta of $9 billion in Deribit’s BTC options signifies heightened sensitivity to price changes of the underlying asset. Delta measures how an options contract’s premium is expected to change based on fluctuations in BTC’s price. This sensitivity indicates market volatility, necessitating active hedging strategies from market makers to manage their risk exposure.

Research from Volmex shows that as open interest in options contracts grows, the option deltas reflect record levels, pointing to significant shifts in pricing strategies. Interestingly, traders on Deribit with crypto-centric options are more optimistically positioned compared to those trading options related to the BlackRock spot bitcoin ETF.