The central theses
- Bitcoin’s price fell below $ 30,000 yesterday, raising concerns about further price volatility.
- Options traders bought put orders at exercise prices of USD 30,000 and USD 28,000 in order to hedge against further short-term price losses.
- Market data shows increased volatility expectations ahead of the $ 3.5 billion option volume expiring next week.
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Bitcoin traders prepare for an extended short-term correction as options contracts totaling 118,000 BTC ($ 3.5 billion) expire on Jan. 29.
Bitcoin price volatility ahead
Bitcoin’s price fell a record 13.1% on Thursday. The price carnage resulted in the value of the coin dropping to $ 28,800.
According to the options market, volatility is expected to remain high through next Friday, with the largest option volume of $ 3.5 billion expiring on that day.
Bitcoin’s implied volatility, which reflects the market’s volatility expectations, is close to a record high of 6.2%.– –Values not seen since COVID-19 crashed in March.
A higher level of implied volatility also equates to costly premiums for options contracts.
Deribit, which is responsible for 85% of options trading, has seen high volumes of put orders at strike prices of $ 31,000 and $ 28,000 since BTC’s slump yesterday. This suggests that traders are reducing their short-term risk against further decline.
In particular, 467 contracts for call options were entered at an exercise price of USD 72,000. The above trade can represent a protection arrangement against short exposure. It is more likely that it is a trader who opens long interest rates after the spot liquidation.
The maximum level of pain at which both call and put buyers experience maximum loss is $ 28,000.
Disclosure: The author held Bitcoin at the time of publication.
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