Sharp Bitcoin price move brewing as BTC volatility falls to a 16-month low

Published on by Cointele | Published on

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Bitcoin options aggregate open interest has increased to $2 billion, which is 13% below the all-time high.

Even though there are some more complex strategies, the mere existence of liquid options markets is a positive indicator.

Implied volatility is a useful and primary metric that can be extracted from options pricing.

The opposite occurs during periods when the price is flat or if there is expectation of milder price swings.

Periods of low volatility are catalysts for more substantial price movements as it signals that market makers and arbitrage desks are willing to sell protection on lower premiums.

Despite 57% being the lowest figure in the past 16 months, it still represents a sizable premium, especially for longer-term options.

To put things in perspective, if an APPL share were priced at $11,300, this March 2021 option would cost $308. Meanwhile, the BTC one is trading at $1,150, which is almost four times more expensive.

Due to its inherent high volatility, Bitcoin options might not be the optimal way to structure leveraged bets.

The same $1,150 cost of the March 2021 option could be used to acquire Bitcoin futures using a 4x leverage.

This would yield a $1,570 gain once Bitcoin reaches the same 34% upside required for the option break even.