Bitcoin’s (BTC) recent surge to a two-month high has sparked a surge in demand for call options and has driven activity in the options market. On Wednesday, the cryptocurrency reached $30,800, its highest level since April 14, bolstered by a wave of spot bitcoin ETF applications from BlackRock (BLK), WisdomTree, and Invesco (IVZ). These applications have underscored the sustained institutional interest in the world’s largest cryptocurrency.
This sudden market shift, which saw prices briefly dip below a crucial support at $25,200 just a week ago, has prompted traders to turn to options in order to capitalize on the rally. On Wednesday alone, major exchanges, including Deribit, saw bitcoin options contracts worth $3.3 billion traded. This represents the highest single-day notional volume in three months, with Deribit accounting for over 80% of the global total.
Deribit’s Asia business development personnel, Lin Chen, noted, “We have witnessed the largest trading volume in three months, with significant interest in buying call options.” Options provide investors with the right to buy or sell the underlying asset, in this case, bitcoin, at a predetermined price in the future. Call options give the buyer the right to purchase, while put options provide the right to sell. Traders often purchase calls as a cost-effective leveraged bullish bet.
Over the past 24 hours, call options at strike prices of $30,000, $31,000, $32,000, and $40,000 have been particularly popular among traders, according to Laevitas. In the last seven days, call spreads have accounted for 45% of the total block flows. Block trades refer to large orders executed on over-the-counter liquidity networks like Paradigm and then listed on exchanges.
The price rally has compelled some call overwriters to repurchase their bullish exposure, explained Patrick Chu, director of institutional sales and trading at Paradigm. Call overwriting involves selling calls against owned cryptocurrency and is a favored strategy for generating additional yield in a flat or negative market. Chu stated, “Mostly, people have been buying back the topside, especially option overwriters given the rapid upward move.” The heightened demand for options has propelled Deribit’s bitcoin volatility index, DVOL, to 59.24, its highest level since early April, as reported by Amberdata.
DVOL measures Bitcoin’s 30-day implied volatility (IV), calculated using Deribit’s options order book. Increased options demand leads to higher IV, reflecting investors’ expectations of price turbulence over a specific period. Deribit’s Chen further explained that while implied volatility typically rises during risk-averse periods in traditional markets, DVOL tends to increase when Bitcoin prices rise. This positive correlation between Bitcoin’s implied volatility and spot prices has persisted since the beginning of the year.
