Bitcoin options traders are looking at higher prices as the largest cryptocurrency approaches its recent historical high.
The out-of-the-money Bitcoin call options with a strike price of $300,000 expiring on June 27 rank second in terms of open contracts on the cryptocurrency options exchange Deribit, following the $110,000 call options. The contracts expiring on June 27 have the highest number of open contracts (i.e., total open contracts) among all expiring contracts.
Jeffrey Howard, North America Head at cryptocurrency brokerage Nonco, stated: "Options are still bullish across various maturities, with the trading price of out-of-the-money call options exceeding that of one-year put options, indicating an upward risk in the market."
On Tuesday, the price of Bitcoin changed little, around $106,000, down less than 3% from the historical high of $109,241 set on January 20. That day marked the day Trump was inaugurated as U.S. President for the second time. Subsequently, the price of Bitcoin dropped by about 30%, but has rebounded in recent weeks.
According to data compiled by cryptocurrency analysis firm Amberdata, the increase in open contracts on Deribit over the past 24 hours has been concentrated at strike prices above $110,000, while most hedging during the same period occurred around $105,000.
The shift among options traders comes as tensions between the U.S. and its major trading partners have eased and inflation data for April came in below expectations.
Nikolay Karpenko, Senior Client Relationship Manager at B2C2, stated: "Driven by the unexpected easing of tariffs between China and the U.S., market sentiment improved at the beginning of this week. Inflows into the cryptocurrency market remain robust, mainly driven by corporate bond allocations and ETF demand, while macro traders seem less willing to re-enter the market solely due to expectations of interest rate cuts."
Ravi Doshi, Co-Head of Markets at brokerage FalconX, mentioned that despite recent fluctuations in Bitcoin trading ranges and a decrease in volatility, "with Bitcoin prices recently rising to historical highs, demand for upper options has reignited, and the skew for call options has significantly increased."
The rise of short-term options with relatively small fluctuations in strike prices also lays the groundwork for what is known as gamma squeeze, where price changes can trigger rapid fluctuations in the market.
If there is a significant purchase of call options, the option sellers (usually traders or market makers) need to hedge their risk exposure. The typical hedging method is to buy the underlying asset so that they do not face directional risk.
Greg Magadini, Director of Derivatives at Amberdata, stated: "If we look at the positions of traders on the Deribit platform for Bitcoin, we find that traders are heavily shorting the $110,000 gamma, as they are buying options at new high price levels. This indicates that market positions are heating up, with expectations that prices will reach new highs. Once we enter an unknown price range, it will be difficult to predict Bitcoin's price increase."