Author: Omkar Godbole, CoinDesk; Translated by: Wuzhu, Jinse Finance
Summary
Short-term Bit options show a preference for call options, suggesting optimism about the U.S. election on November 4.
According to data tracked by Block Scholes, S&P 500 options suggest otherwise, with some cryptocurrency traders "selling volatility."
The notion that Bit (BTC) typically moves in sync with the S&P 500 index is now widely accepted. However, with options market pricing pointing to divergent trends, this positive correlation may be put to the test on the eve of the U.S. election.
According to data tracked by analytics platform Block Scholes, on Monday, the Bit options listed on the mainstream cryptocurrency exchange Deribit showed a clear bias toward short-term call options relative to put options, capturing the U.S. election on November 8 and its outcome.
Meanwhile, short-term options linked to the Wall Street benchmark stock index S&P 500 showed a bias toward put options.
The relatively stronger demand for Bit call options suggests traders expect upward volatility or price gains during the election period. Call options provide asymmetric upside for buyers, allowing entities to hedge or profit from price gains.
The bias toward S&P 500 put options indicates concerns about downside volatility, as put options can protect against price declines. Note that index option biases often show a skew toward put options for various reasons, including portfolio managers hedging tail risks.
However, Block Scholes CEO and founder Eamonn Gashier said the divergence between Bit and S&P 500 options "sets the stage for a big event."
"Either the strong positive correlation between Bit and the S&P 500 index is about to be broken and turn negative, or one of the markets is mispricing. The uncertainty is exciting - are we about to see Bit decouple from stocks, or are traders in one market about to be caught off guard?" Gashier told CoinDesk.
Some cryptocurrency traders "selling volatility"
Betting on muted price action or a decline in volatility ahead of a binary event like the U.S. election may seem counterintuitive, but some traders are indeed doing so.
According to data tracked by cryptocurrency liquidity provider Wintermute, the implied volatility (IV) of the election-expiry options traded on Deribit has declined from an annualized 62% to 55% on Nov. 8. This is a sign of traders implementing volatility-selling strategies. IV is influenced by option demand.
"Traders are selling volatility through strangles, straddles, and volatility spreads. Most positions are around $65,000," Jake Ostrovskis, an over-the-counter trader at Wintermute, told CoinDesk.
"All these trades benefit from a decline in volatility - so betting on realized implied volatility, just like these events have done in recent history," Ostrovskis added.
Selling straddles and strangles means selling call and put options, betting the underlying asset's price will essentially remain range-bound. The sellers pocket the premium, which they get to keep if the price stays within a narrow range before expiry. However, it's a risky strategy more suited to savvy traders with ample capital supply, as losses can quickly mount if volatility spikes, far exceeding the premium received.
According to the Financial Times, the heated presidential race has led S&P 500 index and CBOE Volatility Index (VIX) traders to bet on a spike in volatility via VIX call options.
