For volatility-craving bitcoin traders, 2019 has offered up few opportunities for those looking to capitalize on the wild price swings they had grown accustomed to.
In fact, 2019 has amassed just five trading days with daily closes greater than 5% (up or down), compared to 30 by this time last year, according to Dow Jones Market Data provided by CoinDesk.
But, according to options trader Tim Kelly, founder and CEO of BitOoda, an agency-only regulated broker, we could be on the cusp of a long-awaited sharp move, with the risk pointing to the downside. In fact, signs point to a “final price washout,” he said in a recent note to clients.
“We’re in a bear market so the biggest risk is a catastrophic move to the downside,” said Kelly in a call with MarketWatch.
However, for those looking to capitalize on a potential doom-and-gloom scenario for bitcoin, Kelly offered up a relatively unconventional strategy — at least in bitcoin circles. “We are of the opinion if you are bullish, or have a bearish position, or you are looking to hedge, options are relatively cheap,” he said, citing declining 3-month at-the-money volatility.
At-the-money, or ATM, is a key metric when calculating the cost of an option with a strike price equal to the current spot price. The higher the volatility, the more expensive the option is to buy.
The 3-month ATM volatility opened 2019 just above 75% and has steadily declined to a yearly low of 51.34%. “In our opinion of this illiquid market, massive moves can occur in a matter of minutes, therefore vol should not get sold down much further from these levels,” said Kelly.
While still in their infancy, bitcoin options are garnering more attention. According to Deribit, a market maker in crypto options, they have facilitated $570 million in options this year and are trending upwards, with the nine largest trading days coming since Feb. 1.
Kelly said popular trades include December-expiry call options with strike prices of $5,000, $7,000 and $9,000 and the biggest trade the company had priced was 2,000 lots, which equates to more than $7 million at current spot prices.
In most recent trade, one bitcoin BTCUSD, -0.41% fetched around $3,900, up 2.7% since the beginning of the year, but down around 80% from its all-time high near $20,000.