Bitcoin surged above $104,000 on May 8, reaching its highest level in over three months. The 4.6% price increase that day triggered $205 million in short position liquidations and eroded the value of almost every put option.
Traders are currently questioning whether Bitcoin is ready to break the ATH of $109,354 soon.
The total open interest in Bitcoin put options over the next three months is $8.3 billion, but 97% of that has been placed below $101,000 and is likely to expire worthless. However, this does not mean that every put option trader is betting on Bitcoin's decline, as some may have sold those instruments and benefited from the price increase.
The popular options strategy traded on Deribit is the “bull put spread”, which involves selling a put option while simultaneously buying another put option with a lower strike price, limiting maximum profit and downside risk.
For example, a trader looking to profit from a higher price might sell a put option at $100,000 and buy a put option at $95,000.
Traders are very optimistic, and this is reflected in the top strategies in the Deribit options market, such as “bull call spread” and “bull diagonal spread”.
In both cases, traders expect the Bitcoin price at expiration to be equal to or higher than the traded options.
Bitcoin surpassing $100,000 boosts call options.
If Bitcoin maintains the $100,000 level, most bullish options strategies expiring in May and June will yield positive results, providing traders with additional incentives to support the upward trend.
However, it is likely that sellers (shorts) will use the futures market to influence and prevent Bitcoin from reaching a new peak.
The total open interest in the Bitcoin futures market is currently at $69 billion, indicating strong demand for short positions. At the same time, higher prices may force bears to close their positions.
However, the “short covering” effect is limited in fully hedged positions, with traders not particularly sensitive to Bitcoin price volatility.
For example, a trader could buy spot Bitcoin positions using margin or an ETF fund while simultaneously selling an equivalent amount in BTC futures contracts. Known as “carry trade”, this strategy is delta neutral, thus generating profits regardless of price fluctuations, with monthly Bitcoin futures trading at a premium sufficient to offset the longer settlement time.
The premium for Bitcoin futures contracts has been below 8% for the past three months, so there is not much incentive to engage in “carry trading.”
Therefore, it is likely that some form of “short covering” will occur if Bitcoin surges above $105,000, which would enhance the chances of reaching a new record high in the coming months.
Disclaimer: This article is for informational purposes only and is not investment advice. Investors should do their own research before making decisions. We are not responsible for your investment decisions.