Bitcoin Call Skew Hints at Further Price Rise as Spot ETF Optimism Energizes BTC

Bitcoin Call Skew Hints at Further Price Rise as Spot ETF Optimism Energizes BTC

Get ready for a potential rise in Bitcoin prices as optimism surrounding the Spot ETF energizes the cryptocurrency market. The Bitcoin call skew, a gauge used by options traders to predict the direction of BTC, is now exhibiting the strongest bullish bias in over two years. This means that demand for bullish bets is outpacing puts, indicating a positive sentiment towards Bitcoin’s future performance. With spot ETF optimism driving BTC above $36,800, investors are likely to hold off selling calls above the spot price, providing further support for a potential price rise.

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Bitcoin Call Skew Indicates Bullish Bias

The one-month call-put skew for Bitcoin is currently exhibiting the strongest bullish bias in 31 months, according to data from Amberdata. This gauge, which measures the relative price of calls versus puts expiring in four weeks, has risen above 10%, reaching its highest level since April 2021. This indicates that there is greater demand for call options, or bullish bets, compared to puts, which offer downside protection. This skew suggests that investors are optimistic about Bitcoin’s future price movement.

The rise in the one-month call-put skew can be attributed to the optimism surrounding spot ETFs (Exchange-Traded Funds) for Bitcoin. On Thursday, Bitcoin’s price exceeded $36,800, largely due to this optimism. As a result, investors have likely stopped selling call options that are priced above the current spot price of Bitcoin. This strategy, known as stop selling calls, is commonly used to generate additional yield on top of holding Bitcoin.

Furthermore, speculators in the market may be buying call options to gain leveraged upside exposure to Bitcoin’s price. The longer duration call-put skews, which assess the relative price of calls versus puts expiring in two, three, and six months, also indicate a bias for continued strength in Bitcoin over these time periods. This suggests that traders expect Bitcoin’s price to rise in the coming months.

Recent trading data on the Deribit exchange shows that long call trades, which involve buying call options, account for 44% of the total activity in the past 24 hours. This indicates that options traders are predominantly making bullish bets on Bitcoin’s price.

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Impact of Spot ETF Optimism on BTC

The recent rise in Bitcoin’s price can be largely attributed to the optimism surrounding spot ETFs for Bitcoin. Spot ETFs are investment products that allow investors to gain exposure to the price of Bitcoin without actually owning the cryptocurrency. The hope is that the introduction of spot ETFs will attract institutional and retail investors, driving up demand for Bitcoin and subsequently its price.

As a result of this optimism, investors have likely stopped selling call options above the current spot price of Bitcoin. This strategy, known as stop selling calls, involves selling call options with strike prices that are higher than the current spot price of Bitcoin. By doing so, investors can generate additional yield on top of their Bitcoin holdings. However, with the expectation of further price appreciation due to spot ETF optimism, investors may be less inclined to sell call options and instead hold onto their Bitcoin.

Market makers, who facilitate the trading of options contracts, currently have a net short exposure above $36,000. This means that they have sold more call options than put options at strike prices above $36,000. As Bitcoin’s price rises above this level, market makers will likely need to buy Bitcoin in order to adjust their net exposure back to market-neutral. This buying activity by market makers can potentially accelerate the rally in Bitcoin’s price.

Explanation of Call and Put Options

To understand the significance of the call-put skew and its impact on Bitcoin’s price, it is important to understand the basic concepts of call and put options.

A call option gives the purchaser the right, but not the obligation, to purchase the underlying asset at a predetermined price on or before a specific date. In the context of Bitcoin, a call option gives the holder the right to buy Bitcoin at a predetermined price in the future. Call options are typically purchased by investors who are bullish on the market and expect the price of the underlying asset to rise.

On the other hand, a put option gives the purchaser the right, but not the obligation, to sell the underlying asset at a predetermined price on or before a specific date. In the context of Bitcoin, a put option gives the holder the right to sell Bitcoin at a predetermined price in the future. Put options are usually purchased by investors who are bearish on the market and expect the price of the underlying asset to decline.

The call-put skew is a measure of the relative demand and pricing of call and put options. A skew above 0 indicates that there is greater demand for call options, suggesting a bullish bias in the market. Conversely, a skew below 0 indicates greater demand for put options, suggesting a bearish bias.

Traders’ Behavior in Buying Call Options

In recent weeks, there has been a notable increase in traders buying call options for Bitcoin. This behavior is reflected in the rising bullish bias indicated by the call-put skew. The increased demand for call options suggests that traders are optimistic about Bitcoin’s future price movement and are willing to take bullish bets.

As a result of this increased demand for call options, market makers are left with a significant amount of net short exposure above $36,000. This means that market makers have sold more call options with strike prices above $36,000 than put options. With Bitcoin’s price surpassing this level, market makers will likely need to buy Bitcoin to adjust their net exposure back to market-neutral. This buying activity by market makers can contribute to the upward momentum in Bitcoin’s price.

Longer Duration Call-Put Skews

In addition to the one-month call-put skew, longer duration call-put skews also indicate a bias for BTC strength. These skews assess the relative pricing of call and put options expiring in two, three, and six months. The fact that these longer duration skews also show a bias for BTC strength suggests that traders expect the bullish momentum to persist over the medium to long term.

Traders who anticipate a further increase in Bitcoin’s price over the coming months may be purchasing call options with longer expirations to capture potential gains. Buying longer duration call options allows traders to maintain exposure to Bitcoin’s price movement over a longer period of time, providing them with the opportunity to profit from any continued upward movement in Bitcoin’s price.

Increased Demand for Call Options

The rising bullish bias indicated by the call-put skew is a reflection of the increased demand for call options in the market. Options traders, both institutional and retail, are preferring bullish bets and are actively purchasing call options.

This increased demand for call options can be attributed to several factors. Firstly, the optimism surrounding spot ETFs for Bitcoin has created a positive sentiment in the market, leading more traders to take bullish positions. Additionally, as Bitcoin’s price continues to rise, traders may be more inclined to buy call options to capture potential upside gains. Finally, the longer duration call-put skews also show a bias for BTC strength, which may further contribute to the increased demand for call options.

Deribit Call Option Trades

Data from the Deribit exchange indicates that call option trades have dominated the trading activity in the past 24 hours. Specifically, long call trades, which involve buying call options, accounted for 44% of the total activity on Deribit.

This dominance of long call trades on Deribit suggests that options traders on the exchange have a bullish bias and are actively purchasing call options to profit from the expected upward movement in Bitcoin’s price. The high proportion of long call trades indicates a positive sentiment in the market and reinforces the overall bullish stance of traders.

Bitcoin Price Rally Accelerated By Market Makers

Market makers, who facilitate the trading of options contracts, are likely to buy Bitcoin to adjust their net exposure back to market-neutral as the cryptocurrency’s price continues to rise. This buying activity by market makers can accelerate the rally in Bitcoin’s price.

When market makers have a net short exposure above a certain price level, such as $36,000 in this case, they will need to buy Bitcoin in order to adjust their positions and reduce their risk. As they buy Bitcoin, the increased demand for the cryptocurrency can drive up its price even further. This can create a positive feedback loop where the rising price of Bitcoin leads to more buying activity by market makers, which in turn fuels the rally.

This dynamic highlights the impact that market makers can have on the price of Bitcoin and underscores the importance of their actions in shaping the market’s direction. As market makers adjust their positions to reduce risk, they contribute to the overall market sentiment and can potentially magnify price movements in Bitcoin.

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In conclusion, the bullish call skew in Bitcoin indicates the market’s optimism and expectation of further price rise. The optimism surrounding spot ETFs for Bitcoin has been a key driver of the recent price rally, while increased demand for call options and the behavior of market makers further contribute to the upward momentum. As traders bet on Bitcoin’s strength, the longer duration call-put skews and trading activity on platforms like Deribit reinforce the overall bullish sentiment. It will be interesting to see how these factors continue to shape the market and whether Bitcoin’s price rally accelerates even further.

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