High-priced $ 32,000 worth of Bitcoin options show that some professional traders expect more upside potential


Related articles

A month ago it was difficult to find an investor who would have expected Bitcoin price to reach USD 32,000 (BTC) in January. At this point, it needed a 140% uptrend from the $ 13,300 price on October 30th and that seemed pretty far fetched.

Therefore, the call (buy) options traded on Deribit in January, valued at $ 32,000, traded for a meager $ 67 or 0.005 BTC at the end of October.

BTC $ 32,000 January 2021 call option in BTC. Source: Deribit

Fast forward to now, and the same calling option peaked at $ 705. That’s a nearly 10x gain in less than four weeks. Keep in mind that despite the rally to $ 19,484, it still takes another 67% up to reach $ 32,000.

BTC Jan. 2021 call options market. Source: Deribit

Despite the recent spike in BTC prices, the implied option probability (delta) is currently 11%. This call option price has also increased due to the change in BTC volatility as sellers charge a higher premium to take the risk in uncertain markets.

Intense price fluctuations, regardless of direction, increase volatility, and an unexpected flow of news usually drives the indicator up.

Bitcoin 3 month options implied volatility. Source: Skew

Notice how BTC volatility rose from 57% on October 30th to 78% this week. This event is particularly positive for buyers of call options. Even if the BTC price had stayed the same, the option price would have increased accordingly.

Don’t take option probabilities literally

Option prices are also heavily dependent on how far away the expiration date is. The same $ 32,000 call may be considered worthless two days prior to the due date. Therefore, traders should not fixate too much on the implied option probability (delta).

BTC Dec. 2020 call options market. Source: Deribit

When an investor looks at the call options for December 25th, they can conclude that the 26% probability for $ 20,000 seems weak. After all, an 18% pump in a month seems unreasonable. Traders typically have short-term memories, but an 18% increase in 30 days has been seen in 9 out of the last 12 months.

Bitcoin Price (USD) at Bitstamp. Source: TradingView

The last time a monthly pump of 18% or more happened wasn’t that long ago. On August 23, Bitcoin closed at $ 11,645, up 22% from the previous month.

Traders and investors should consider buying call options with longer expiration dates. Those brave enough to bet on the BTC price hike of 150% a month ago are extremely happy with the results.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.