Bitcoin Traders Wary of Price Drop in U.S. Election Week, CME Options Show

11/05/2024 15:41
Bitcoin Traders Wary of Price Drop in U.S. Election Week, CME Options Show

"It looks like bitcoin options traders appear to be hedging their bets to the downside ahead of the U.S. election this week," one observer said, noting pricier puts on the CME.

  • U.S. election uncertainty spurs demand for short-term protective measures put on the CME.

  • Pricing for longer-duration options on both CME and Deribit signals a constructive outlook.

Bitcoin {{BTC}} traders are seeking protection against price weakness amid projections of a U.S. election-induced volatility boom.

That's according to CME's bitcoin options market, where put options, offering protection against price drops and expiring within a week, were pricier relative to calls on Monday, according to data source CF Benchmarks and QuickStrike.

The so-called 25-delta risk reversal for contracts expiring Friday (P2XE24) was -1.3% on Monday, showing a bias for puts. The metric measures the difference in implied volatility between out-of-the-money higher strike calls and lower strike OTM puts, providing an easy to read picture of the market sentiment.

A call option gives the purchaser the right but not the obligation to buy the underlying asset at a predetermined price at a later date. A put options gives the right to sell.

"It looks like bitcoin options traders appear to be hedging their bets to the downside ahead of the U.S. election this week. Through a .25 delta risk reversal we can see that contracts expiring within a week are slightly negative – meaning puts more expensive than calls – compared to longer-dated maturities of either 2 weeks or 30 days, where the skew reverts to being positive again," researchers at CF Benchmarks told CoinDesk in an email.

Bitcoin's price has pulled back to $68,000 from near record highs above $73,500 in one week, alongside a drop in the more pro-crypto Donald Trump's chances of election victory.

Friday's risk reversal (P2EX24) shows a bias for puts while the Nov. 29 gauge (BTCX24) holds positive. (CME, QuickStrike)

Friday's risk reversal (P2EX24) shows a bias for puts while the Nov. 29 gauge (BTCX24) holds positive. (CME, QuickStrike)

The pricing for longer-duration options was positively skewed in favor of calls, indicating a broader constructive outlook, consistent with the consensus analysts' expectations for a year-end rally to $80,000 and higher.

The latest polls show that Democrat Kamala Harris and her rival Republican candidate Donald Trump, perceived as crypto-friendly, are running neck and neck in most swing states, including Pennsylvania and nationally.

Per some observers, the 50-50 odds mean the eventual outcome, expected Friday, could lead to a BTC price swing of $6,000-$8,000.

Options trading on the leading exchange Deribit also show a broader bullish outlook with a largely neutral bias for this week, according to data source Amberdata.

Deribit's BTC options: short-term and long-term risk reversals. (Amberdata)

Deribit's BTC options: short-term and long-term risk reversals. (Amberdata)

The 25-delta risk reversals show barely a difference between pricing for calls and puts expiring this week. The sentiment is decisively bullish from the Nov. 15 expiry and beyond.

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