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Bitcoin options open interest spikes as volatility on the cryptocurrency market rapidly increases. More traders are betting on $100,000 Bitcoin calls, but it does not necessarily mean that they believe in the currency reaching that price.
Rise in open interest
Options expiring on Dec. 31 have faced a strong spike in open interest after Bitcoin swiftly dropped to $59,000. The options open interest is mostly distributed to call options rather than puts.
Call options are an alternative way of betting on the specified price of the asset. According to the provided data, traders are mostly betting on call (buy) options with large dominance.
For options expiring 31-December-2021, we can see a huge dominance of call options.
— glassnode (@glassnode) November 17, 2021
The #Bitcoin bulls are betting big, with large open interest clusters at strike prices of:
- $100k (OI = $500M)
- $120k (OI = $420M)
- $200k (OI = $380M)
Live Chart: https://t.co/MLtKOFBHSv pic.twitter.com/vGjn2WoZND
Current open interest for $100,000 calls stays at $500 million, in addition to $200,000 calls having $380 million of open interest. In total, traders bet more than $1.3 billion on Bitcoin, moving through $100,000 by the end of the year.
Do traders actually believe in Bitcoin reaching $100,000?
While options were initially designed as contracts that allow you to receive the right but not have the obligation to purchase an asset for a price determined in advance, experienced traders tend to avoid such risks and use options differently.
Among professional traders, options are being used to hedge positions on the spot or derivatives markets. When traders have large short positions open, analysts might open options contracts by paying relatively small fees, which they will lose if the price of the underlying asset does not reach the strike price.
In this specific case, traders could have opened short positions on the market and hedged them with call option contracts. But according to futures open interest and market funding data, there is no trackable amount of short positions open on the market currently, which means that traders are, in fact, betting on the growth of Bitcoin in the future.
Vladislav Sopov