While volatility is price-agnostic, recent flows in the options market suggest bullish expectations.
Crypto traders awaiting a surge in bitcoin (BTC) price volatility may soon have it their way as derivatives experts suggest the impending U.S. presidential election could trigger price swings matching the dramatic movements of early August.
“I expect a +1.5-Sigma ($6,000 to $8,000 price range) as a result of the post-election price reaction,” Greg Magadini, director of derivatives at crypto data tracking platform Amberdata, told CoinDesk.
The projection is based on the annualized forward volatility of 112% derived from the Nov. 6 options trading on Deribit, which suggests a price fluctuation of $4,000 in either direction. A positive 1.5-sigma of that translates to a price swing in the range of $6,000 to $8,000.
Bitcoin last saw a similar price swing in early August when the unwinding of the so-called risk-on yen carry traders led to broad-based risk aversion, sending BTC down to $50,000.
Magadini assumes 1.5-sigma volatility because the latest reports show Republican candidate Donald Trump, perceived to be crypto-friendly, and his rival Democrat Kamala Harris are locked in a tight race in seven swing states.
The 50-50 odds indicate that an eventual outcome is unlikely to surprise markets, irrespective of who wins, implying a low probability of a positive 3-sigma move (three standard deviations from the mean in a normal distribution) looks unlikely. A positive 3-sigma move indicates an extreme event.
Similarly, a sub negative 1-sigma move or minimal price action looks doubtful, as 50-50 odds mean traders won’t be able to price the election outcome in advance. The election is due Tuesday, with results expected on Friday.
Recall that volatility is bi-directional, meaning expected price swings could happen in either direction. That said, options traders have been preparing for bullish volatility, purchasing calls at $70,000, $85,000, and $90,000 strikes on Deribit and the Chicago Mercantile Exchange. (A $8,000 surge from BTC going market rate of $68,800 would mean new record highs.)
As such, call options are trading pricier than puts in terms of volatility in a sign of bullish sentiment, according to Joshua Lim, co-founder of crypto derivatives trading firm and liquidity provider Arbelos Markets.
“Bitcoin call options are repricing higher, even while spot price ticks lower this weekend due to surprisingly weak polls for Trump,” Lim said.
Lim added that the volatility curve is pricing a 7%-8% move around critical events of the week, mainly Thursday’s Fed rate decision and the expected U.S. election outcome on Friday.
DEX traders see greater volatility in ETH
Ether (ETH), the native token of Ethereum’s blockchain and the world’s second-largest cryptocurrency by market value, has historically been more volatile than BTC. That’s unlikely to change with the U.S. election.
According to onchain options listed on decentralized exchange Derive, there is a 68% chance of ETH chalking out a 9.35% to 10.19% price swing, with BTC expected to see volatility ranging between 8.97% to 9.85%. A 10% volatility in ETH means a $247 move at the going market rate of $2,470, and a 10% move in BTC implies a $6,800 swing.
DEX traders are anticipating bullish volatility as well. As of Sunday, the total call option open interest stood at 1,179 contracts versus 885 open put option contracts, a sign of bullish inclination.
“As the election nears, these figures are crucial for traders looking to navigate the heightened uncertainty in the crypto markets. It’s a pivotal moment for onchain options trading, demonstrating the sophisticated strategies traders are employing to hedge against or capitalize on expected volatility,” Nick Forster, founder of Derive, told CoinDesk.
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Source: Vietnam Insider