Increasing Interest in BTC Accumulation via Selling Put Options by Traders

Traders in the cryptocurrency market are increasingly engaging in cash-secured put selling to accumulate Bitcoin, indicating a bullish outlook.

Highlights:

• Bitcoin traders are showing a growing tendency to sell BTC put options, reflecting positive price predictions.
• The combined delta in BTC options and associated ETFs has reached $9 billion, which denotes a high sensitivity to fluctuations in Bitcoin’s price.

What to consider: Would you offer insurance when anticipating a minimal chance of a claim? Likely, you would, while profiting from the premium without a second thought. Similarly, Bitcoin (BTC) traders are undertaking this in the Deribit-listed BTC options market, indicating optimistic price outlooks. Recently, a surge in the number of traders selling (writing) BTC put options has been noted, akin to providing insurance against price drops in exchange for a small upfront premium.

They are employing this strategy in a cash-secured fashion, holding a corresponding amount in stablecoins, ensuring the ability to purchase BTC if the market drops and the put buyer opts to utilize their right to sell BTC at the predetermined higher price. This tactic permits traders to collect premiums (paid by put buyers) while potentially accumulating Bitcoin if the options are activated. Essentially, it represents a long-term bullish sentiment.

“There is a notable increase in cash-secured put selling using stablecoins—another sign of a more mature, long-term approach to BTC accumulation and a continued expression of bullish sentiment,” said Lin Chen, Deribit’s Asia Business Development Head. Chen adds that BTC holders are also selling higher strike call options to gather premiums and enhance yield on their coin inventory, impacting Deribit’s DVOL index, which tracks the 30-day BTC implied volatility. This index has declined from 63 to 48 since the panic selling in BTC to $75K on April 7, based on data from the charting platform TradingView.

“We see that investors maintain a long-term bullish perspective on BTC, especially among crypto-native ‘holders’ willing to endure market cycles,” Chen noted.

Bitcoin’s price has surged beyond $92,000 after an earlier drop to $75,000, supposedly due to safe-haven demand and renewed interest from institutional investors. This sharp price rebound has reset BTC options risk reversals indicating a preference for call options across various timelines, as per Amberdata. Over the last couple of days, traders have targeted calls at strike prices of $95,000, $100,000, and $135,000 through the over-the-counter platform Paradigm, with the $100,000 strike call emerging as the most favored option on Deribit, showing a notional open interest exceeding $1.6 billion.

$9 billion in delta

Understanding the importance of observing flows in the options market can be illustrated by the cumulative delta in Deribit’s BTC options and options associated with the U.S.-listed BlackRock spot bitcoin ETF (IBIT), which reached $9 billion as of Wednesday, according to Volmex data.

This data reveals heightened sensitivity of options to variations in BTC’s price, suggesting a likelihood of price volatility. Delta, a key metric used by sophisticated market players to manage risk, indicates how much the price (premium) of an options contract is expected to fluctuate in response to a $1 movement in the price of the underlying asset, in this scenario, BTC.

Therefore, a cumulative delta of $9 billion signifies the overall sensitivity of all outstanding BTC and bitcoin ETF options to changes in the spot price. The total notional value of all outstanding options contracts amounted to $43 billion as of Wednesday.

Such substantial data, or sensitivity to price changes in the underlying asset, compels market makers and traders to actively pursue hedging strategies to minimize their risks. Market makers, who are responsible for providing liquidity to the order book, often augment price volatility through their ceaseless endeavors to maintain a net directional neutral exposure.

“Option deltas have soared to unprecedented levels as open interest expanded and strike deltas experienced notable shifts. Option market makers are actively hedging this delta exposure, driven by considerable new positions and distinct shifts in strike pricing,” Volmex remarked on X.

As noted by Volmex, crypto-native options traders over Deribit are taking a more bullish stance compared to those trading options linked to IBIT.