Bitcoin option traders may want to tread lightly
Even though there were doubts about the Bitcoin market reacting to the global economic events, the recent COVID-19 pandemic aligned it more with the global market. However, the crypto market has remained in sync with the affairs in the crypto industry. This was witnessed on 22 July when the news about the US banks offering crypto custody broke. Ethereum’s market shot up by 10%, while the largest digital asset, Bitcoin was restricted at 2%. Despite this restrained spike in price, the BTC options market was experiencing building short-term momentum.
The window between the news breaking and reaching the market has been considered a valuable window or an alpha opportunity. As the BTC market witnessed only a 2% spike on Wednesday, those that bought near-dated ATM calls at $9.3 did a 3x when the asset hit $9.5. According to data provided by Deribit Insights, there were 9.5k calls traded on 24 July. These were traded at:
“pre-news at 0.004 (37% IV), post news at 0.005 (40% IV), and 0.0165 (57% IV) post-rally.”
This surge in the options market was visible even in the BTC spot market that was close to $9.5k. The Implied Volatility also noted a spike as the buyers entered with new money. However, it was isolated to 1-week options. The 1-week and daily options trading were reported to be 35% to 40% which was considered too low.
The lack of momentum could also be because the BTC price action was not limited to the US time zone and followed through in Asia. There are many countries like Japan, China, and South Korea in Asia that have been open towards crypto and have been actively participating in keeping up the pace with the tech. However, the news was US-centric and witnessed a limited reaction in the country, and is probably why did not make impact the Asian traders. The 1-week short-term IV noticed a pump but when the traders in America became active but corrected back down soon after.
At press time, the Bitcoin market has been dipping with the current value of $9,546. The current sentiment in the market has moved towards greed, according to Alternative.me, which could be tricky in the near-term options.