The anticipation building around the approval spot bitcoin exchange-traded fund (ETF) is getting higher despite delayed actions taken by the U.S. Securities and Exchange Commission (SEC). Experts suggest that a positive in the process will transform the crypto options market. Derbit crypto exchange shared an insight report on the presumed options market behavior driven by BTC ETF approval.
Bitcoin ETF approval anticipation
Bitcoin (BTC) managed to gain a robust year-to-date surge of 125%. Meanwhile, traders have shown limited interest in purchasing leveraged upside through Bitcoin options. They cited underperforming volatility for this outcome. The entry of institutional players is expected to play a crucial impact on implied volatility, potentially heralding a new era for trading strategies.
According to Derbit insights, the introduction of US-listed Bitcoin spot ETFs is expected to be a game changer for the crypto options market. Despite Bitcoin’s massive year-to-date returns, the average 30-day realized volatility stands at 41%. It is reported to be lower than the 5-year average of 63%. This discrepancy between the spot market rally and subdued volatility has been a defining factor that has contributed to a relative lack of interest from traders.
Game changing ETFs
It is important to note that as institutional players enter the arena Bitcoin options volume is predicted to surge, accompanied by a dampening effect on implied volatility. The report suggests that it can witness 50-100% implied volatility could be waning. This might happen as the institutional investors are likely to adopt strategies that involve selling volatility. The institutionalization of Bitcoin derivatives is expected to bring about structural changes in the beginning, resembling the TradeFi options market.
The traditional put/call ratio in Bitcoin options, where two calls are outstanding for every one put option these days is anticipated to undergo a fundamental shift post the Bitcoin ETF introduction. It is expected to shift the mark of puts which currently stands at a 1:2 ratio for puts vs. calls. If we look at the S&P 500, its put/call ratio has averaged between 1.2 to 1.5 this year.
An analysis of selling strangles, involving a constant 30-day rolling basis with 120% call and 80% put, reveals a trading strategy that proved profitable in 78% of observations during the last year. This underscores the potential profitability of volatility-selling strategies, especially when Bitcoin’s price exhibited significant rallies.
