Key conclusions:
- Half of the $6 billion in open interest in Bitcoin options is tied to long-term strategies used for hedging and price-neutral strategies.
- The put (sell) option premium of 9% hints that professional traders are worried about a possible drop in the price of Bitcoin.
Bitcoin (BTC) bulls have high hopes for options expiring at the end of the year on December 25, with $6 billion at stake. The price’s 33% rally from the annual low of $60,130 on February 6 played a major role in restoring bullish expectations. However, the huge amount of call options targeting $115,000 and above on December 25 raises questions about whether the bulls are overconfident.
December Open interest for Bitcoin call (buy) options on Deribit, BTC. Source: Deribit
The Deribit exchange holds a 92% market share in December Bitcoin options open interest at $5.5 billion. However, the actual value at expiration will be much lower. Many of these instruments are placed on unlikely outcomes as hedges or for neutral strategies that do not require large price changes to remain profitable.
Bitcoin call options dominate, but both sides have unrealistic bets
Put (sell) options are underrepresented at 56% on Deribit compared to call options. Crypto traders are notorious for being bullish, so the put-to-call ratio is usually skewed. Still, the $1.85 billion in open interest in call options targeting $115,000 and above is significant. Because of this setup, it is worth comparing how optimistic call options are compared to puts.
December Bitcoin Put (Sell) Open Interest Options on Deribit, BTC. Source: Deribit
Also noticeable is the high volume of put options targeting $55,000 and below, totaling $1 billion in open interest. This means that the percentage of bets that are considered unlikely is similar for both parties, approximately 50% of the open interest in each segment. If the bulls are considered too optimistic, then the bears seem equally extreme in their pessimism.
December Bitcoin Options Prices on Deribit May 7th. Source: Deribit
In addition to serving as a counterweight to strategies with different expiration dates, the $120,000 call option offers cheap exposure to extreme upside events. Based on Deribit prices on May 7, a customer pays $2,202 to secure unlimited upside exposure to the equivalent of one full Bitcoin at $120,000 or more on December 25th.
The option skew metric provides a clearer picture of professional traders’ comfort levels with respect to upside and downside price risk.
Related: Bitcoin Holds $81,000 Amid Unchanged Derivatives Markets – Is the Rise Sustained?
Bitcoin 6-month delta skew options (put-call) on Deribit: Source: Easiness
Put options are trading at a 9% premium to equivalent calls, signaling moderate fear of a downside move in Bitcoin’s price. Under neutral conditions, the curvature indicator should range between -6% and +6%. According to derivatives metrics, the rise to $80,000 did not significantly affect investor optimism.
Ultimately, the $1.85 billion in December call options should not be interpreted as a sign of excessive bullish confidence.
