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. 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. 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.
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%. Although not an unusual level, the rationale behind such relatively low options premium demands further analysis.
There’s been an unusually high correlation between BTC and U.S. tech stocks over the past six months. Although it is impossible to pinpoint the cause and effect, Bitcoin traders betting on a decoupling may have lost their hope. The above chart depicts an 80% average correlation over the past six months. Regardless of the rationale behind the correlation, it partially explains the recent reduction in BTC volatility.
The longer it takes for a relevant decoupling to happen, the less incentives traders have to bet on aggressive BTC price moves. An even more crucial indicator of this is traders’ lack of conviction and this might open the path for more substantial price swings. Most of the relevant Bitcoin options mature on the last Friday of every month and some concentration on the shortest ones is expected due to covered call trades.