institutions seem confident about the cryptocurrency’s long-term prospects.
The cryptocurrency dropped to $48,114 earlier on Friday after just failing to pass the psychological hurdle of $50,000 over the weekend. So far, however, there are few signs of preparations for deeper losses in the options market.
“There is still an absence of any institutional long-term hedging. In fact, funds continue to take advantage of selling June-December expiry put options at strikes below $40,000,” the reasons for the price drop and the resulting changes in options market flows.
A put option gives the holder the right but not the obligation to sell the underlying asset at a predetermined price on or before a specific date. Investors buy puts, paying a premium, when anticipating a price drop and sell (write) put options, collecting a premium, when they foresee price consolidation or a rally.
The absence of any implied volatility spike on the drop from $49,000 to $46,000, as well as the bounce to $48,000, suggests “comfort and consolidation” in the mid-$40,000 to $50,000 trading range,
“The strategy of selling the downside puts is twofold: to get premium (theta) which is higher with higher volatilities, and also because the traders don’t think a crash will happen before that expiry,” the biggest crypto options exchange by trading volume.
Currently, large investors are still selling long-term puts below $40,000, showing they are not anticipating an extended/sustained price drop below $40,000.