Značka: options

2 key Bitcoin trading indicators suggest BTC is ready for a 62% upside move

Bitcoin (BTC) has been below $45,000 for 14 days and is currently 40% below the $69,000 all-time high. This movement holds similarities to late-September 2021, when Bitcoin price flat-lined for 11 days and was 36% below the previous $64,900 all-time high on April 14.Bitcoin price at Coinbase, USD. Source: TradingViewTo understand whether the current price momentum mimics late September, traders should start by analyzing the Bitcoin futures contracts premium, which is also known as “basis.” Unlike a perpetual contract, these fixed-calendar futures do not have a funding rate, so their price will differ vastly from regular spot exchanges.By measuring the expense gap between futures and the regular spot market, a trader can gauge the level of bullishness in the market. Excessive optimism from buyers tends to make the three-month futures contract to trade at a 15% or higher annualized premium (basis).Bitcoin 3-month futures premium in Sept. 2021. Source: laevitas.chFor example, earlier in September, the basis rate ranged from 9% to 13%, indicating confidence, but on Sept. 29, right before Bitcoin broke out above $45,000, the 3-month futures premium was at 6.5%. Generally, readings below 5% are typically deemed bearish, so a 6.5% reading in late September meant investors were displaying low confidence.Bitcoin 3-month futures premium. Source: laevitas.chRegarding the current market conditions, there are a lot of similarities to September 2021, right before Bitcoin broke $45,000 and initiated a 62% rally. First, the current Bitcoin 3-month futures premium stands at 6.5% and the indicator recently ranged from 9% to 11%, reflecting mild optimism.Unexpected positive market moves happen when investors least expect it and this is precisely the scenario happening right now. To confirm whether this move was specific to the instrument, one should also analyze options markets. The 25% delta skew compares equivalent call (buy) and put (sell) options. The indicator will turn positive when “fear” is prevalent because the protective put options premium is higher than the call options.Related: What bear market? Current BTC price dip still matches previous Bitcoin cycles, says analystThe opposite holds when market makers are bullish, causing the 25% delta skew to shift to the negative area. Readings between negative 8% and positive 8% are usually deemed neutral.Deribit Bitcoin options 25% delta skew in Sept. 2021. Source: laevitas.chThe 25% delta skew ranged near 10% by late Sept. 2021, indicating distress from options traders. Market makers and arbitrage desks were overcharging for protective put (bearish) positions.Deribit Bitcoin options 25% delta skew. Source: laevitas.chAccording to the current 25% delta skew indicator, options traders are neutral. However, on Jan. 10 the metric touched the 8% positive threshold, signaling a mild bearishness.Derivatives metrics show that the current market conditions resemble late-September when Bitcoin reversed a 24-day downtrend and initiated a 62% rally in the following three weeks. Will this phenomenon repeat itself? Bitcoin bulls certainly hope so.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Ethereum options data shows pro traders expect strong resistance at $3,600

Ether (ETH) price has bounced 13% from its Jan. 9 low at $2,950, but it seems premature to call the move a cycle bottom. Instead, the larger bearish movement has prevailed and although it looks primarily correlated to Bitcoin (BTC) price, regulatory concerns and a tighter United States Federal Reserve policy have also been blamed for the movement.BTC and Ether have been under pressure since regulators focused their attention on stablecoins. On Nov. 1, the U.S. Treasury Department urged Congress to ensure that stablecoin issuers are regulated similarly to U.S. banks. ETH/USD price at FTX. Source: TradingViewCurrently, the descending channel formation initiated in mid-November shows resistance at $3,850 resistance. The average network transaction fees have also risen back above $50 and the longer that the Ethereum 2.0 upgrade takes to occur, the better the situation will be for competing chains.Regardless of the rationale behind Ether’s 28% price drop over the past six weeks, bulls missed the opportunity to secure a $300 million profit in the Jan. 14 weekly options expiry. Unfortunately for them, this $4,500 and higher scenario seems unfeasible at the moment.Ether options aggregate open interest for Jan. 14. Source: Coinglass.comThe call-to-put ratio shows an 89% advantage for bulls because the $380 million call (buy) instruments have a larger open interest versus the $200 million put (sell) options. The current 1.89 measure is deceptive because the recent Ether price drop caused most of the bullish bets to become worthless.For example, if Ether’s price remains below $3,300 at 8:00 am UTC on Jan. 14, only $24 million worth of these call (buy) options will be available, but there is no value in having the right to buy Ether at $3,300 if it is trading below that price.Related: Cointelegraph Consulting – A look at Terra’s ecosystemBears need ETH price below $3,300 to secure a $65 million profitBelow are the three most likely scenarios based on the current price action. The number of option contracts available on Jan. 14 for bulls (call) and bear (put) instruments vary depending on the expiry ETH price. The imbalance favoring each side constitutes the theoretical profit:Between $3,100 and $3,300: 7,400 calls vs. 27,800 puts. The net result favors bears by $65 million.Between $3,300 and $3,500: 22,200 calls vs. 19,300 puts. The net result is balanced between bulls and bears.Above $3,500: 32,500 calls vs. 15,600 puts. The net result is $60 million favoring the call (bull) instruments.This crude estimate considers call options being used in bullish bets and put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.For instance, a trader could have sold a put option, effectively gaining a positive exposure to Ether above a specific price. But, unfortunately, there’s no easy way to estimate this effect.Bulls don’t stand a chanceEther bulls would have had a decent $300 million advantage if the price held above $4,500. However, the current scenario requires a 6% positive move from $3,300 to $3,500 to generate a $60 million advantage. Considering there are less than 12 hours until Friday’s options expiry, bulls will likely concentrate their efforts on keeping the price above $3,300 to balance out the scales. The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Bitcoin's $6.1 billion options expiry was not enough to break the bearish sentiment

Bitcoin’s (BTC) price has been ranging between $46,000 and $52,000 for 26 days. Despite the large nominal $6.1 billion year-end options expiry, the bullish and bearish instruments were evenly balanced between $44,000 and $49,000.Therefore, it was no surprise that the $47,175 price at 8:00 am UTC on Dec. 31 brought little change to the price structure. Even the 3% rally to $48,500 following the event failed to sustain itself, signaling that bears are unwilling to cede their upper hand.Bitcoin/USD price on Coinbase. Source: TradingViewBulls might have interpreted the 9,925 BTC leaving Coinbase in 24 hours as a positive trigger, considering fewer coins are available on exchanges for newcomers. Besides, the first week of the year has been positive for the past four years, averaging 18.5% gains for Bitcoin holders.To further support bulls’ thesis, the United States listed tech company MicroStrategy added another 1,914 BTC to their balance sheet on Dec. 30. On the negative side, regulation continues to pressure the markets as South Korean exchanges require users to verify their third-party wallet addresses to comply with the Financial Action Task Force (FATF) travel rule guidelines.Bitcoin had a stellar 2021 anywayRegardless of the short-term bearishness behind December’s 16% price drop, Bitcoin continues to vastly outperform both U.S. stocks and gold for the third year in a row. Yet, that performance was not enough to avoid every $48,000 and higher call (buy) option instrument becoming worthless as the Dec. 31 expiry price came in lower.Bitcoin options aggregate open interest for Dec. 31. Source: Coinglass.comAt first sight, the $4.0 billion call (buy) options vastly outperformed the $2.1 billion put (sell) instruments, but the 1.9 call-to-put ratio is deceptive because the 16% price drop from Nov.’s $57,000 close wiped out most of the bullish bets. Therefore, there is no value in the right to buy Bitcoin (call option) at $50,000 if it is trading below that price.Bulls and bears instruments were evenly marched for the Dec. 31 Bitcoin options expiry, which came in much smaller than expected at $660 million. Yet, bears were unable to take control as 85% of their bets have been placed at $47,000 or below. Such data partially explains why the Dec. 31 expiry was followed by an attempt from bulls to regain momentum.Will the first week of 2022 finally be able to revert the slightly negative sentiment that has prevailed since the Dec. 3 crash? Unfortunately, according to Bitcoin options markets, there is no indication that the tide has changed.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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5 ways derivatives could change the cryptocurrency sector in 2022

We‘ve all heard stories of billion-dollar future contracts liquidations being the cause of 25% intraday price crashes in Bitcoin (BTC) and Ether (ETH) but the truth is, the industry has been plagued by 100x leverage instruments since BitMEX launched its perpetual futures contract in May 2016.The derivatives industry goes far beyond these retail-driven instruments, as institutional clients, mutual funds, market makers and professional traders can benefit from using the instrument‘s hedging capabilities. In April 2020, Renaissance Technologies, a $130 billion hedge fund, received the green light to invest in Bitcoin futures markets using instruments listed at the CME. These trading mammoths are nothing like retail crypto traders, instead they focus on arbitrage and non-directional risk exposure.The short-term correlation to traditional markets could riseAs an asset class, cryptocurrencies are becoming a proxy for global macroeconomic risks, regardless of whether crypto investors like it or not. That is not exclusive to Bitcoin because most commodities instruments suffered from this correlation in 2021. Even if Bitcoin price decouples on a monthly basis, this short-term risk-on and risk-off strategy heavily impacts Bitcoin‘s price.Bitcoin/USD on FTX (blue, right) vs. U.S. 10-year yield (orange, left). Source: TradingViewNotice how Bitcoin‘s price has been steadily correlated with the United States 10 year Treasury Bill. Whenever investors are demanding higher returns to hold these fixed income instruments, there are additional demands for crypto exposure.Derivatives are essential in this case because most mutual funds cannot invest directly in cryptocurrencies, so using a regulated futures contract, such as the CME Bitcoin futures, provides them with access to the market.Miners will use longer-term contracts as a hedgeCryptocurrency traders fail to realize that a short-term price fluctuation is not meaningful to their investment, from a miners‘ perspective. As miners become more professional, their need to constantly sell those coins is significantly reduced. This is precisely why derivatives instruments were created in the first place.For instance, a miner could sell a quarterly futures contract expiring in three months, effectively locking in the price for the period. Then, regardless of the price movements, the miner knows their returns beforehand from this moment on.A similar outcome can be achieved by trading Bitcoin options contracts. For example, a miner can sell a $40,000 March 2022 call option, which will be enough to compensate if the BTC price drops to $43,000, or 16% below the current $51,100. In exchange, the miner‘s profits above the $43,000 threshold are cut by 42%, so the options instrument acts as insurance.Bitcoin‘s use as collateral for traditional finance will expandFidelity Digital Assets and crypto borrowing and exchange platform Nexo recently announced a partnership that offers crypto lending services for institutional investors. The joint venture will allow Bitcoin-backed cash loans that can t be used in traditional finance markets.That movement will likely ease the pressure of companies like Tesla and Block (previously Square) to keep adding Bitcoin to their balance sheets. Using it as collateral for their day-to-day operations vastly increases their exposure limits for this asset class.At the same time, even companies that are not seeking directional exposure to Bitcoin and other cryptocurrencies might benefit from the industry‘s higher yields when compared to the traditional fixed income. Borrowing and lending are perfect use cases for institutional clients unwilling to have direct exposure to Bitcoin‘s volatility but, at the same time, seek higher returns on their assets.Investors will use options markets to produce “fixed income”Deribit derivatives exchange currently holds an 80% market share of the Bitcoin and Ether options markets. However, U.S. regulated options markets like the CME and FTX US Derivatives (previously LedgerX) will eventually gain traction. Institutional traders dig these instruments because they offer the possibility to create semi “fixed income” strategies like covered calls, iron condors, bull call spread and others. In addition, by combining call (buy) and put (sell) options, traders can set an options trade with predefined max losses without the risk of being liquidated.It‘s likely that central banks across the globe will worldwide keep interest rates near zero and below inflation levels. This means investors are forced to seek markets that offer higher returns, even if that means carrying some risk. This is precisely why institutional investors will be entering crypto derivatives markets in 2022 and changing the industry as we currently know.Reduced volatility is comingAs previously discussed, crypto derivatives are presently known for adding volatility whenever unexpected price swings happen. These forced liquidation orders reflect the futures instruments used for accessing excessive leverage, a situation typically caused by retail investors.Yet, institutional investors will gain a broader representation in Bitcoin and Ether derivatives markets and, therefore, increase the bid and ask size for these instruments. Consequently, retail traders‘ $1 billion liquidations will have a smaller impact on the price.In short, a growing number of professional players taking part in crypto derivatives will reduce the impact of extreme price fluctuations by absorbing that order flow. In time, this effect will be reflected in reduced volatility or, at least, avoid problems such as the March 2020 crash when BitMEX servers “went down” for 15 minutes.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Markets rally after FOMC meeting, but Bitcoin bears still have a short-term advantage

Bitcoin’s (BTC) price has been in a down-trend since the $69,000 all-time high on Nov. 10, when the the Labor report showed inflation pushing above 6.2% in the United States. While this news could be beneficial for non-inflationary assets, the VanEck physical Bitcoin exchange-traded fund (ETF) denial by the U.S. Securities and Exchange Commission (SEC) on Nov. 12 threw some investors off-guard.Bitcoin/USD price on Coinbase. Source: TradingViewWhile the ETF request denial was generally expected, the reasons given by the regulator may be worrisome for some investors. The U.S. SEC cited the inability to avoid market manipulation on the broader Bitcoin market due to unregulated exchanges and heavy trading volume based on Tether’s (USDT) stablecoin.Analyzing the broader market structure is extremely relevant, especially considering that investors closely monitor meetings held by the U.S. Federal Reserve. Regardless of the magnitude of the upcoming tapering in the Fed’s bond and assets repurchase program, Bitcoin’s movements have been tracking the U.S. Treasury yields over the past 12 months.Bitcoin/USD at FTX (orange, left) vs. U.S. 10-year Treasury Yields (blue, right). Source: TradingViewThis tight correlation shows how decisive the Federal Reserve’s monetary policy has been with riskier assets, including Bitcoin. Moreover, the yield decline over the past three weeks from 1.64 to 1.43 partially explains the weakness seen in the crypto market.Obviously, there are cother factors in play, for example, the market pullback on Nov. 26 was primarily based on concerns over the new COVID-19 variant. Regarding derivatives markets, a Bitcoin price below $48,000 gives bears complete control over Friday’s $755 million BTC options expiry.Bitcoin options aggregate open interest for Dec. 17. Source: Coinglass.comAt first sight, the $470 million call (buy) options overshadow the $285 million put (sell) instruments, but the 1.64 call-to-put ratio is deceptive because the 14% price drop since Nov. 30 will likely wipe out most of the bullish bets.If Bitcoin’s price remains below $49,000 at 8:00 am UTC on Dec. 17, only $28 million worth of those call (buy) options will be available at the expiry. In short, there is no value in the right to buy Bitcoin at $49,000 if it is trading below that price.Bears are comfortable with Bitcoin below $57,000Here are the three most likely scenarios for the $755 million Friday’s options expiry. The imbalance favoring each side represents the theoretical profit. In other words, depending on the expiry price, the quantity of call (buy) and put (sell) contracts becoming active varies:Between $45,000 and $47,000: 110 calls vs. 2,400 puts. The net result is $105 million favoring the put (bear) options.Between $47,000 and $48,000: 280 calls vs. 1,900 puts. The net result is $75 million favoring the put (bear) instruments.Between $48,000 and $50,000: 1,190 calls vs. 1,130 puts. The net result is balanced between call and put options.This crude estimate considers call options being used in bullish bets and put options exclusively in neutral-to-bearish trades. However, this oversimplification disregards more complex investment strategies.For instance, a trader could have sold a put option, effectively gaining a positive exposure to Bitcoin (BTC) above a specific price. But, unfortunately, there’s no easy way to estimate this effect.Bulls need $48,000 or higher to balance the scalesThe only way for bulls to avoid a significant loss in the Dec. 17 expiry is by sustaining Bitcoin’s price above $48,000. However, if the current short-term negative sentiment prevails, bears could easily pressure the price down 4% from the current $48,500 and profit up to $105 million if Bitcoin price stays below $47,000.Currently, options markets data slightly favor the put (sell) options, thus creating opportunities for additional negative pressure.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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$1.1B in Bitcoin options expire on Friday, but data points to a sub-$55K BTC price

Bitcoin (BTC) bulls are still licking their wounds from the bloody Dec. 4 correction which saw the price collapse from $57,000 all the way to $42,000. This 26.5% downside move caused $850 million in long BTC futures contracts to be liquidated, but more importantly, it shifted the “Fear and Greed index” to its lowest level since July 21.Bitcoin/USD price at FTX. Source: TradingViewIt is somehow strange to compare both events, as the July 21 sub $30,000 low would have erased the entire gains in 2021. Meanwhile, the $42,000 low from Dec. 4 is still a 44% gain year-to-date. Compare this against the S&P 500 which is up 21% in 2021 and the WTI oil price which has accrued a 41% gain.Bulls might be focused on the Bitcoin reserves held at exchanges, which continues to descend and currently sits at the lowest level in 3 years. According to data from CryptoQuant, there are now less than 2.27 million BTC deposited at exchanges and having fewer coins available for trading signals that investors are unwilling to sell in the short term. This is a dynamic that many investors consider to be bullish.Even with the apparent balance between call (buy) and put (sell) options on Friday’s $1.1 billion expiry, bears are better positioned after Bitcoin stabilized slightly above $50,000.Bitcoin options aggregate open interest for Oct. 10. Source: CoinGlassA broader view using the call-to-put ratio shows a modest 7% advantage to Bitcoin bulls because the $555 million call (buy) instruments have a larger open interest versus the $520 million put (sell) options. However, the 1.07 indicator is deceptive because the 11.5% price drop over the past week caused most bullish bets to become worthless.For example, if Bitcoin’s price remains below $52,000 at 8:00 am UTC on Dec. 10, only $50 million worth of those call (buy) options will be available. That effect happens because there is no value in the right to buy Bitcoin at $55,000 if it is trading below such price.The numbers suggest that bulls are set for a major lossBelow are the three most likely scenarios based on the current price action. The number of option contracts available on Dec. 10 for bulls (call) and bear (put) instruments vary depending on the expiry BTC price. The imbalance favoring each side constitutes the theoretical profit:Between $47,000 and $50,000: 400 calls vs. 6,600 puts. The net result is $300 million favoring the put (bear) instruments.Between $50,000 and $54,000: 1,700 calls vs. 4,700 puts. The net result is $160 million favoring the put (bear) instruments.Above $54,000: 2,400 calls vs. 2,900 puts. The net result favors the put (bear) options by $30 million.This crude estimate considers the call options being used in bullish bets and the put options that are exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.For instance, a trader could have sold a call option, effectively gaining a negative exposure to Bitcoin above a specific price. But, unfortunately, there’s no easy way to estimate this effect.Bears will do their best to hold BTC below $50,000Bitcoin bears need a gentle push to sub-$50,000 to score a $300 million profit. On the other hand, bulls would need a 7.2% price recovery from the current $50,500 to reduce their loss by half.Considering the $2 billion liquidation of leverage long positions on Dec. 4, bulls are likely trying to stay afloat and will be unwilling to add more risk right now. It would be unnecessarily ineffective for bullish investors to waste their efforts trying to salvage this short-term loss. So in this instance, bears look set to maintain the upper hand in this weekly options expiry.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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