Can Bitcoin Exit the 53-87 Thousand Dollar Range?

A large bitcoin (BTC) options trade executed on Deribit earlier in the day envisions a shift from the current low volatility regime to a period of high price volatility, potentially exceeding the $53,000 to $87,000 range.

A long straddle is preferred when the market is expected to move enough in either direction to make the call or put option worth more than the cumulative premium paid. A call option protects the buyer against price rallies and increases in value as the price of the underlying asset rises. A put option works the opposite way and gains value as prices fall.

“When discussing straddles, straddles, and rational straddle strategies, it is necessary to have a deep understanding of ‘premium’ trading of options contracts,” writes options trader Charles M. Cottle in his book “Options Trading: Hidden Truths.” “Premium sellers want the market to stay still, while premium buyers want the market to move.”

The price of bitcoin must fall above $87,000 or below $53,000 by the end of November for the strategy to become profitable and more than offset the premium paid, Lin Chen, Deribit’s Asia business development manager, says in an interview with CoinDesk.

In other words, a bet is placed on an explosion of volatility beyond the $53-87k range. If the price remains between these levels until the end of November, investors will incur losses and the maximum loss will be the $1 million premium paid.

“BTC has over $1.4 billion of open interest expiring at the end of November and has a put-call ratio of 0.66, which is significantly higher than normal. For example, the put-call ratio for December is only 0.39,” he said. Chen continues: “We are facing a major hedging effort due to the US elections.”