Key takeaways:
- Half of the $6 billion in open Bitcoin options are tied to long-term hedging and price neutral strategies.
- The put (put) premium of 9% indicates that professional investors are concerned about a potential decline in the price of Bitcoin.
Bitcoin (BTC) bulls have high hopes for the year-end option expiration on December 25, with $6 billion at stake. The 33% price rally from the yearly low of $60,130 on February 6 played a major role in restoring bullish expectations. However, the huge number of call (call) options targeting $115,000 and above on December 25 raises questions about whether bulls are being overconfident.
December Bitcoin Call and Call Options Open Interest in Deribit, BTC. source: Deribit
The Deribit exchange holds a 92% stake in December Bitcoin Options with an interest rate of $5.5 billion. However, the actual value at expiration will be much lower. Many of these instruments are positioned for low-probability outcomes as hedges or neutral strategies that do not require huge price movements to remain profitable.
Bitcoin call options dominate, but both sides have unrealistic bets
Put (put) options are underrepresented on Deribit by 56% compared to call options. Cryptocurrency traders are known for their bullish bias, so the put-to-call ratio is usually skewed. Still, the $1.85 billion in open interest on calls worth $115,000 and up is significant. With this setup, it’s worth comparing bullish call options with put options.
December Bitcoin put (put) options open interest in Deribit, BTC. source: Deribit
Also notable is the huge number of puts worth $55,000 and less, totaling $1 billion in open interest. This means that the percentage of bets deemed unlikely is similar for both sides, around 50% of open bets in each segment. If the bulls are seen as too sanguine, the bears look just as good extreme in their pessimism.
December Bitcoin option prices at Deribit on May 7. Source: Deribit
In addition to acting as a counterweight to strategies with different expiration dates, the $120,000 call offers low-cost exposure to extreme bullish events. Based on Deribit prices on May 7, the buyer pays $2,202 to secure unlimited upside exposure to the equivalent of one full Bitcoin at a price of $120,000 or more on December 25.
The Option Skewness Index provides a clearer picture of professional traders’ comfort level with both upside and downside price risk.
Related: Bitcoin holds 81k dollars in stable derivatives markets – is the rally sustainable?
6-month Bitcoin delta options skew (put-call) at Deribit: Source: Lightness
The put options are trading at a 9% premium to equivalent call options, signaling moderate fear of downside price movements in Bitcoin. Under neutral conditions, the skew index should be between -6% and +6%. According to derivatives indicators, the enhance to $80,000 did not significantly affect investor optimism.
Ultimately, December’s $1.85 billion in call options should not be interpreted as a sign of excessive bullish confidence.
