Investors are increasingly betting on a sharp rise in Bitcoin's price, as implied volatility in the cryptocurrency's options market has dropped below its realized volatility

According to data from over-the-counter institutional cryptocurrency trading network Paradigm, there has been a noticeable increase in bullish bets in the $45,000 and $46,000 strike prices, with outright call buying being one of the main strategies.

Background

Implied volatility, which represents the expected movement of the underlying asset's price over a year, has been positively correlated with Bitcoin's price movement since early 2023. However, following the launch of spot ETFs in the US last week, implied volatility has peaked and dropped below realized volatility, leading to increased demand for calls at strikes $45,000 and $46,000.

The Straddle Strategy

A straddle is a non-directional strategy that involves the simultaneous purchase of call and put options at the same strike price. The purpose of this strategy is to profit from an expected spike in implied volatility and the resulting rise in options prices. With Bitcoin's implied volatility trading well under its realized volatility, Paradigm clients are playing for a sharp rally back in spot and volume.

Increased Demand for Calls

There has been a large buyer of Feb $44k straddles and some outright call buying in the $45k / $46k strikes. Calls purchased are likely standalone trades, betting on renewed upside price volatility in Bitcoin, rather than a part of a complex strategy.

The current trend in Bitcoin options market suggests that investors are optimistic about the cryptocurrency's future price movement.

With implied volatility dropping below realized volatility, bullish bets are on the rise, with outright call buying being one of the main strategies. As a leading source of information and analysis on the cryptocurrency market, CoinDesk will continue to provide updates on the latest developments and trends in the industry.


References:

Godbole, O. (2024, January 19). Bullish Bitcoin Bets Rise as Implied Volatility Slides. Retrieved from https://www.coindesk.com/markets/2024/01/19/bullish-bitcoin-bets-rise-as-implied-volatility-slides/

What is the Bitcoin halving 2024? (n.d.). Retrieved from https://smartvalor.com/en/bitcoin-halving-2024

DraKoln, N. (2022, July 12). Understanding a Straddle Strategy for Market Profits. Retrieved from https://www.investopedia.com/articles/optioninvestor/08/straddle-strategy.asp

elegant_solution. (n.d.). Retrieved January 13, 2024, from https://www.freepik.com/author/user28432665

Freepik - Goodstudiominsk. (n.d.). Retrieved January 5, 2024, from https://www.freepik.com/author/goodstudiominsk

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