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Options trading appears to be the “pharmaceutical sector” of the crypto market, showing strong activity across both bullish and bearish market trends.
Take, for example, Bitcoin listed on Deribit an options market that continues to boom despite, or perhaps because of, the recent bearish price action. On Thursday, the number of active BTC contracts on the platform rose to a record 453,820, each representing 1 BTC. Notional open interest, representing the dollar value of active contracts, also hit a record $50.27 billion, according to data source Deribit Metrics.
“Despite continued price pressure and the recent decline in the spot price of BTC, interest in BTC open options on Deribit has risen to a new all-time high of notional roughly $50 billion – a record both in terms of contracts and in dollar terms – underscoring sustained and expanding market participation,” Luuk Strijers, CEO of Deribit, told CoinDesk.
Open interest in the terms has more than doubled since the start of the year, demonstrating resilience as BTC fell from $110,000 to $75,000 earlier this year before moving to a new high above $126,000 earlier this month. Since then, prices have pulled back sharply to $108,000.
Inflexibility to price fluctuations can be explained by the fact that options serve more strategic purposes beyond simple directional bets, allowing traders to bet on volatility and time. This facilitates effective management of market exposure through thick and thin.
A call option gives the holder the right, but not the obligation, to purchase the underlying asset at a later date at a predetermined price. A put option offers the right to sell.
Active protection against negative impacts
The latest record in open interest in BTC is marked by the growing popularity of put options, which offer protection against bearish trends.
This is evident in the notional open interest of $2 billion on the $100,000 strike, making it almost as popular as the $120,000 and $140,000 strike calls. A $100,000 put is a bet that the spot price of BTC will fall below this level.
“Unlike previous records, this new OI milestone features a remarkable concentration of open interest around 100,000 strike, highlighting active downside hedging by market participants. At this single strike, Deribit shows more than 19,000 open contracts, representing more than $2 billion in nominal value,” Strijers said.
He explained that puts continue to trade at a premium to calls, even though the relative wealth of puts has retreated in recent days, with some traders chasing higher out-of-the-money strikes.
“Despite the dominant bearish position, the past 24 hours also reveal signs of renewed optimism. While put OI rose on key declines, there was a significant increase in call activity around 120,000 and above, suggesting traders are placing positions for potential upside volatility or gamma exposure,” Strijers noted.
