Bitcoin and S&P 500 Options Show Different Trends

So far, the idea that bitcoin (BTC) is moving in tandem with the S&P 500 has been accepted by the majority of the market. However, the positive correlation looks set to be tested in the run-up to the US elections as options market pricing points to different trends.

According to data tracked by analytics platform Block Scholes, bitcoin options listed on crypto exchange Deribit yesterday showed a noticeable bias in short-term call options, likely due to the upcoming US elections on November 8 and its outcome.

Short-term options tied to Wall Street’s benchmark stock index, the S&P 500, showed a bias for put options.

Since put options protect against price losses, the bias towards S&P 500 put options indicates concerns about downside volatility.

The divergence between bitcoin and S&P 500 options is “setting the stage for something big,” according to Eamonn Gashier, CEO and founder of Block Scholes.

“Either the strong positive correlation between BTC and the S&P 500 is about to break and turn negative, or one of these markets is mispriced. The excitement lies in the uncertainty: Are we on the verge of seeing Bitcoin break away from equities, or are traders about to be caught off guard? We’ll wait and see.”

It may seem counterintuitive to bet on a drop in volatility ahead of a two-part event like the US election, but some traders are doing just that.

According to data tracked by crypto liquidity provider Wintermute, implied volatility (IV) on Deribit associated with November 8 fell from 62 percent year-on-year to 55 percent. This is a sign that traders are creating volatility-drawdown strategies.

“All of these trades are benefiting from low volatility,” according to Wintermute OTC trader Jake Ostrovskis, who reports that most of the positioning is around $65k.