Bitcoin The derivatives market sends signals of stability in a wide range rather than a massive moonshot or violent crash.
Activity in options listed on Deribit shows strong support around $85,000 from heavy put selling or traders offering insurance against price declines below that level.
At the same time, some traders are providing protection against upward price movements beyond the $95,000 to $100,000 levels by writing call options at those levels, creating resistance, according to data tracked by market maker Wintermute.
Therefore, volatility could remain contained within this range as put and call sellers earn premiums on option sales.
“Strong put selling support around 85,000 (then 80,000/75,000 as secondary buffers), while the call crushes the upside cap around 95,000-100,000. Volume is harvested inside this band,” Wintermute desk strategist Jasper De Maere said in an email.
Put selling builds a floor
Put options are contracts that pay if the underlying asset falls below a set price on or before a specific date. Thus, traders selling the $85,000 strike put reflect confidence that BTC will not dip below this level, at least in the short term.
When a large number of traders sell puts at a specific level en masse, it often creates self-fulfilling support.
In the case of BTC, the $85,000 put is the second most popular option across all expirations, with a notional open interest of over $2 billion at press time. Notional open interest refers to the monetary value of the number of contracts active at any given time. On Deribit, an options contract represents one BTC.
If prices are near this level, it is likely that put sellers will purchase BTC in the spot or futures market, creating support.
Call crushing creates resistance
At the high end, bitcoin holders sell call options against their long spot positions between $95,000 and $100,000. These “crushes” generate revenue in the form of premiums received to provide insurance against upward price movements, but require call sellers to deliver bitcoins if prices rise above these levels.
The result: These call sellers could add selling pressure to the spot market if prices approach $100,000, making a breakout more difficult.
Thus, the increased interest in selling the $100,000 strike call suggests limited enthusiasm for a rapid six-figure rally. At the time of writing, the $100,000 call was the most popular play with a notional open interest of $2.37 billion.
The Harvest of In-Game Volatility
“Volume is being harvested,” De Maere noted, referring to traders selling both puts and calls to pocket the premiums. The strategy essentially generates returns by betting on a decrease in volatility – hence the name “volatility harvesting”.
These options regularly lose value and expire worthless if bitcoin continues to trade sideways, allowing sellers to keep all of the premiums received.
At press time, BTC changed hands at $87,400, according to CoinDesk data.
