The open interest on Bitcoin (BTC) options is just 5% short of their all-time high, but nearly half of this amount will be terminated in the upcoming September expiry.
Although the current $1.9 billion worth of options signal that the market is healthy, it’s still unusual to see such heavy concentration on short-term options.
By itself, the current figures should not be deemed bullish nor bearish but a decently sized options open interest and liquidity is needed to allow larger players to participate in such markets.
Total BTC options open interest. Source: Skew
Notice how BTC open interest has just crossed the $2 billion barrier. Coincidentally that’s the same level that was achieved at the past two expiries. It is normal, (actually, it’s expected) that this number will decrease after each calendar month settlement.
There is no magical level that must be sustained, but having options spread throughout the months enables more complex trading strategies.
More importantly, the existence of liquid futures and options markets helps to support spot (regular) volumes.
Risk-aversion is currently at low levels
To assess whether traders are paying large premiums on BTC options, implied volatility needs to be analyzed. Any unexpected substantial price movement will cause the indicator to increase sharply, regardless of whether it is a positive or negative change.
Volatility is commonly known as a fear index as it measures the average premium paid in the options market. Any sudden price changes often cause market makers to become risk-averse, hence demanding a larger premium for option trades.
BTC 3-month options implied volatility. Source: Skew
The above chart clearly shows a massive spike in mid-March as BTC dropped to its yearly lows at $3,637 to quickly regain the $5K level. This unusual movement caused BTC volatility to reach its highest levels in two years.
This is the opposite of the last ten days, as BTC’s 3-month implied volatility ceded to 63% from 76%….