Bullish Bitcoin Bets Rise as Implied Volatility Slides: Traders Take Advantage of Cheap Options

Bitcoin (BTC) options are currently being seen as cheap by traders, leading to an increase in bullish bets. Options are derivative contracts that give the purchaser the right to buy or sell the underlying asset at a predetermined price at a later date. A call option allows traders to profit from or hedge against price rallies, while a put option does the opposite.

Traders consider options to be cheap when implied volatility, which is one of the key determinants of options prices, falls below its long-term average or the asset’s realized volatility. Implied volatility refers to the one standard deviation range of the expected movement of the underlying asset’s price over a year and tends to revert to the mean. Realized volatility, on the other hand, refers to the price movement that has already occurred.

Bitcoin’s implied volatility (IV) reached its peak with the launch of spot ETFs in the U.S. last week and has now dropped below the realized volatility. This has sparked demand for call options at strikes $45,000 and $46,000 during Thursday’s North American trading hours, according to Paradigm, an over-the-counter institutional cryptocurrency trading network.

Paradigm reported, “We saw a large buyer of Feb $44k straddles and some outright call buying in the $45k/$46k strikes. BTC implied volatility now trades well under-realized volatility, so we are not surprised to see Paradigm customers playing for a sharp rally back in spot and vol.” The term “outright call buying” suggests that the calls purchased were likely standalone trades, betting on renewed upside price volatility in bitcoin and not part of a complex strategy.

Since early 2023, bitcoin’s price and implied volatility have mostly been positively correlated. A straddle, which is a non-directional strategy involving the simultaneous purchase of call and put options at the same strike price, is being used to profit from an expected spike in implied volatility and the resulting rise in options prices.

Bitcoin’s price has dropped over 15% since the ETF debuted on January 11, with prices briefly falling below $41,000 late Thursday. Traders are now taking advantage of the cheap options to make bullish bets on a potential rally in bitcoin’s price.

Source: [Coindesk](https://www.coindesk.com/markets/2024/01/19/bullish-bitcoin-bets-rise-as-implied-volatility-slides/?utm_medium=referral&utm_source=rss&utm_campaign=headlines)