Key Points
- Bitcoin options traders are preparing for a possible short-term price correction, based on CF Benchmarks’ analysis of CME bitcoin futures options.
- Despite short-term concerns, there is optimism for Bitcoin’s long-term prospects, with a potential increase in institutional involvement.
Despite a softer U.S. CPI inflation report, investors seem prepared to pay a premium for short-term downside protection. This information comes from an analysis of CME options on Bitcoin futures conducted by CF Benchmarks.
The analysts noted that even though Bitcoin experienced a surge above the $66,000 mark following the softer inflation print, there is still “higher implied volatility for OTM puts compared to calls.”
Derivatives Traders’ Outlook
The willingness of derivatives traders to pay elevated premiums for out-of-the-money (OTM) puts is seen as a bearish short-term market indicator. The increased implied volatility (IV) for OTM puts suggests that traders are hedging against a potential decrease in Bitcoin’s value.
IV is a metric used in the options market that indicates the market’s prediction of an asset or security’s potential movement or price fluctuations in the future.
Longer-term Prospects
In contrast to the short-term view, the analysts highlighted a “flatter” volatility curve between longer-dated puts and calls, with a slight preference for calls. This indicates that investors are more optimistic about Bitcoin’s longer-term prospects.
The relative flatness of longer-dated puts and calls could also suggest increased institutional involvement, as these investors are less prone to extreme swings in sentiment.
Options are derivative contracts that grant a trader the right, but not the obligation, to buy or sell the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy, and a put offers the right to sell.
CME Group’s Future Plans
According to a Financial Times report, the CME Group is contemplating the launch of Bitcoin spot trading in addition to its existing futures products. The group has reportedly been in discussions with traders who prefer dealing with cryptocurrencies on a regulated platform.
The launch of Bitcoin spot trading on CME would enable traders to profit from so-called basis trades, where they would gain by exploiting the difference between futures prices and the underlying asset’s spot price.
CME Group, which owns the world’s largest futures exchange and already offers Bitcoin futures trading, has not yet finalized this plan, and has declined to comment on the matter.
