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In a market characterized by choppy price action and uncertaintyThe big traders of the big cryptocurrencies are quietly taking divergent paths.
While the bitcoin investors prepare for volatility with non-directional options, some traders bet on the opposite, recent block trades on the crypto options exchange Deribit show.
During the past week, strangles accounted for 16.9% of the blocks of bitcoin options traded on the platform, while straddles made up 5%. Both are non-directional volatility strategies, betting on significant price movements, both up and down. XRP traders, in contrast, strangle shorted, in effect betting against increased volatility.
A strangle involves the purchase of out-of-the-money (OTM) call and put options with the same expiration but different strike prices equidistant from the spot price, offering a cost-effective way to profit from large swings. For example, if the spot price is $104,700, then the simultaneous purchase of the $105,000 call and the $104,400 put will constitute a long strangle.
A straddle involves buying call and put options at the same strike price, resulting in a higher initial cost but more sensitivity to volatility.
Both strategies can lose premiums if anticipated volatility does not materialize. Note that the bet here is on volatility, and does not necessarily imply a bullish or bearish price outlook.
According to Deribit CEO Luuk Strijers, taken together these non-directional BTC strategies exceed 20% of total block flows, an unusually high figure.
“This suggests a market struggling with uncertainty, where traders anticipate significant price movements but are unsure of the direction,” Strijers told CoinDesk.
Block options trades are large, privately negotiated transactions involving significant amounts of options contracts, typically executed outside the open market to minimize their impact on price. They are mainly conducted by institutional investors or large traders and allow the discrete execution of large positions without triggering market volatility or revealing trading intentions prematurely.
The preference for non-directional strategies underlines why the crypto options market has been flourishing: it allows traders to speculate on volatility instead of price direction, facilitating more effective risk management.
Deribit’s BTC options market is worth more than $44 billion in terms of notional open interest, offering crypto traders the most liquid way to hedge risk and speculate.
The ether the market is worth more than $ 9 billion and presented a bias for a diagonal to spread over the past week.
Which is best categorized as a directional to neutral strategy that benefits from time (theta) decay and also has positive exposure to implied volatility. In other words, while it’s not just a volatility game, volatility plays a role in its profit potential.
In the case of ETH, straddles and strangles cumulatively accounted for just over 8% of the total block flow in the past week.
Bet on the XRP rangeplay
Deribit’s XRP options market remains relatively small, with a notional open interest of around $67.6 million. Block trades are infrequent, but tend to be large enough to capture the market’s attention when they occur.
For example, on Wednesday, a short strangle trade in XRP was executed on the OTC desk at Paradigm and then booked on Deribit. The trade involved the sale of 40,000 contracts each of the $2.2 call and $2.6 put options expiring on November 21, representing 80,000 XRP at an average premium of 0.0965 USDC.
A short strangle is a bet on volatility compression and the trader behind the short strangle is betting that macro jitters are price, according to Deribit’s head of business development in Asia, Lin Chen.
“Crypto volatility remains largely elevated amid broader risk sentiment driven by macro uncertainties, including the dynamics of the US government shutdown and reopening, and expectations around a December rate cut,” Chen said in an interview. “The implied volatility of XRP to the money has increased above 80%, reflecting this increased uncertainty.
“The trader is effectively betting that these macro risks are now fully priced in. His view is that XRP will remain in the range-bound between $ 2.2 and $ 2.6, and the performance on the sale of the strangle seems particularly attractive,” added Chen.
Shorting a strangle can be a costly strategy if volatility rises unexpectedly, potentially leading to unlimited losses as the underlying price moves sharply beyond the strike prices.
Because of this significant risk, short strangles are generally considered high-risk trades unsuitable for most retail investors unless they have robust risk management and a high tolerance for potential drawdowns.
