Everything you wanted to know about BTC options but were afraid to ask!

[fillippone]

Options on CME reach an ATH.

Bitcoin options volume, open interest on CME soar to hit all-time highs, risk is 'back on'




Worth noting options on CME are a tiny fraction of options traded on more exotic venues, and represent mainly risk appetite from regulated subjects.

[d5000]

Taking the opportunity to revive this excellent thread

As some followers of Bitcoin options surely already have seen, the BitVol (implied volatility based on option prices) is currently on record low values of 36-39. The previous low was about 43 in January 2023. This means that options are currently very cheap, people seem not to expect much volatility for the short term. I've created a thread in the Speculation forum about this, but it's only marginally getting the kind of attention I'd desired (it gets some attention, but mainly from low-quality posters).

There's an opinion article of Glassnode's newsletter which argues that volatility could currently be mispriced, i.e. options being cheaper as they should be. According to Glassnode's article, "volatility premiums [are] trading at less than half the 2021-22 baseline". Also BTC derivatives in general have hit an all time low in terms of trade volume - at least BTC derivatives dominance seems to be trending up, so altcoin derivatives are even seeing lesser volume.

Regarding options only, trade volume seems to have grown up to April/May (like seen in the last post), but then starting with the tight sideways markets have hit quite significant lows (although not all-time lows). And even longer-term options contracts (e.g. for mid-2024) have low volatility premiums.

What do option experts think? Is the market really thinking we're about to see a long sideways market or is there some flaw in the current option pricing like Glassnode suspects? (It doesn't seem to be only a "summer" phenomenon, as in 2022 the situation was quite different).

[fillippone]

Taking the opportunity to revive this excellent thread

As some followers of Bitcoin options surely already have seen, the BitVol (implied volatility based on option prices) is currently on record low values of 36-39.

Thank you. I am always a little bit sceptical when I see a report saying something is “mispriced”.
I guess the implied vol is low because also realised has been quite subdued. So yes, I guess implied is low because option market foresee low volatility for the next weeks. Bear that you can have low volatility also if market rallies a lot. Volatility is variation around the mean:if the mean is the one of an appreciation, then volatility can go down even if the bitcoin is running high

[fillippone]

I didn't know earlier, but I stumbled on a series of videos that are quite informative about option trading: Glassnode Clips.
There is a video from three days ago, that analyses the drop in implied vols in Bitcoin:



This video shows how to interpret in the current trading environment using concepts like implied volatility, delta skew, volumes, and Open interest.

[wavessurfing]

I didn't know earlier, but I stumbled on a series of videos that are quite informative about option trading: Glassnode Clips.
There is a video from three days ago, that analyses the drop in implied vols in Bitcoin:



This video shows how to interpret in the current trading environment using concepts like implied volatility, delta skew, volumes, and Open interest.

source ?

[JayJuanGee]

I didn't know earlier, but I stumbled on a series of videos that are quite informative about option trading: Glassnode Clips.
There is a video from three days ago, that analyses the drop in implied vols in Bitcoin:

This video shows how to interpret in the current trading environment using concepts like implied volatility, delta skew, volumes, and Open interest.

source ?

Did you try clicking on the pic?

[fillippone]

I am re-bringing this thread to life as SEC authorised IBIT options.

SEC Greenlights Options Trading for BlackRock’s IBIT Spot Bitcoin ETF


This is great news, as it enables smooth options trading outside the CME, where options on bitcoin futures are currently traded. However, there is a problem with the basis between futures and spots.

IBIT is the more actively traded instrument in the US, so I guess it will be highly beneficial for them to have options listed as well.

It is not yet clear when options trading will actually start, but this is a move in the right direction.

[SuperBitMan]

I am re-bringing this thread to life as SEC authorised IBIT options.

SEC Greenlights Options Trading for BlackRock’s IBIT Spot Bitcoin ETF


This is great news, as it enables smooth options trading outside the CME, where options on bitcoin futures are currently traded. However, there is a problem with the basis between futures and spots.

IBIT is the more actively traded instrument in the US, so I guess it will be highly beneficial for them to have options listed as well.

It is not yet clear when options trading will actually start, but this is a move in the right direction.

I love this, I'm just seeing this thread today and I must say a very big thank you because I have learnt something from reading your write ups.

[fillippone]

I am re-bringing this thread to life as SEC authorised IBIT options.

SEC Greenlights Options Trading for BlackRock’s IBIT Spot Bitcoin ETF


This is great news, as it enables smooth options trading outside the CME, where options on bitcoin futures are currently traded. However, there is a problem with the basis between futures and spots.

IBIT is the more actively traded instrument in the US, so I guess it will be highly beneficial for them to have options listed as well.

It is not yet clear when options trading will actually start, but this is a move in the right direction.

Apparently, we are very close to option trading on IBIT:



This is big, as many institutions are still struggling to get their options cleared on the CME, which is getting more and more traction amongst the regulated players.

[wavessurfing]

options on spot btc ETF are now available

what do you recommend to buy call options on IBIT ?

[Husna QA]

The Indonesian translation is available at:
https://bitcointalk.org/index.php?topic=5567495.0

In one of the discussions, a member asked how to use the Bitcoin Options Net Premium Strike Heatmap, as shown in the image below:

Source: https://www.coinglass.com/pro/options/net-premium-strike-heatmap

Can this heatmap be used to help decide whether to choose a call option or a put option?

[fillippone]

Can this heatmap be used to help decide whether to choose a call option or a put option?

This is the first time I see one of these graphs, I will investigate on how it work.
Probably it will collect the net premium paid or received on each option.

I am not sure it is relevant. Once the open interest has been open, the effect on the market is the same, irrelevant of the moment such open interest has been opened.
Just remember that the premium of an option is bigger the longer the time to maturity, or the life of the option itself.

[Taskford]

Can this heatmap be used to help decide whether to choose a call option or a put option?

This is the first time I see one of these graphs, I will investigate on how it work.
Probably it will collect the net premium paid or received on each option.

I am not sure it is relevant. Once the open interest has been open, the effect on the market is the same, irrelevant of the moment such open interest has been opened.
Just remember that the premium of an option is bigger the longer the time to maturity, or the life of the option itself.

As what I know that heatmap will give us an idea on where traders are paying or receiving premiums at various strike prices. This highlight positioning, market sentiments and capital concentration.

It's relevance is if you want to track liquidity, institutional sentiments then also triggering factors of potential price volatility on the market.

Although not really so sure and this is what I can add up on the topic stated.

[fillippone]

Can this heatmap be used to help decide whether to choose a call option or a put option?

This is the first time I see one of these graphs, I will investigate on how it work.
Probably it will collect the net premium paid or received on each option.

I am not sure it is relevant. Once the open interest has been open, the effect on the market is the same, irrelevant of the moment such open interest has been opened.
Just remember that the premium of an option is bigger the longer the time to maturity, or the life of the option itself.

As what I know that heatmap will give us an idea on where traders are paying or receiving premiums at various strike prices. This highlight positioning, market sentiments and capital concentration.

It's relevance is if you want to track liquidity, institutional sentiments then also triggering factors of potential price volatility on the market.

Although not really so sure and this is what I can add up on the topic stated.

This is an interesting chart, BUT what it really matters is the overall position on a given strike, not WHEN this position was put on.
This graph, being on the total premium paid, gives this "temporal breakdown".
But when we get close to a strike, and then a market maker is forced to do some delta hedging strategy, WHEN the position entered on his portfolio is pretty irrelevant.
But yes, this van gives you a "temperature check" on the sentiment of the market.

[fillippone]

Blackrock finally announced the filing for their BITA: an acrively managed ETF which will sell covered calll on Bitcoin.

This strategy is basically an yield encanchmnet of bitcoin, selling potential upside in order to gather premium, in case the bitcoin doesn't rally to much.

Arkham  gives us a brief descritpion of the Strategy:
BITA: Everything We Know About BlackRock's New Bitcoin Income ETF

How The Covered Call ETF Works

The BITA ETF is designed to transform Bitcoin from a passive asset into an income-generating asset. The ETF will employ a covered-call strategy – common in traditional equity markets – that will work as follows:

Underlying holdings: The ETF will hold a combination of Bitcoin, cash, and shares in BlackRock's spot Bitcoin ETF, IBIT. This hybrid structure gives it flexibility to manage exposure while maintaining a close connection to the spot BTC price.
Custody: Coinbase will serve as the institutional custodian of the fund's Bitcoin holdings, the same custodian used for IBIT.
Selling call options: BlackRock will actively sell (write) call options – primarily on IBIT shares, and occasionally on indices that track spot Bitcoin ETPs. These options give a counterparty the right to buy the underlying asset at a specified strike price on a specific date.
Collecting premiums: Each time an option is sold, the fund collects a premium from the buyer. These premiums are the core source of income for BITA holders and will be distributed regularly.
Income in sideways markets: This strategy is particularly effective during periods of low or flat price action. Even if Bitcoin moves sideways, the fund continues to collect option premiums, providing a steady income stream regardless of price direction.
The trade-off is capped upside: The inherent cost of a covered-call strategy is that if Bitcoin's price rises above the strike price of the sold option, the fund is obligated to sell at the lower strike price. This means BITA holders may miss out on significant upside during sharp rallies. In essence, the fund converts Bitcoin's volatility into cash flow, trading some potential price appreciation for regular income.

This stategy perform well in flattish or mildly bullish  markets. Can give some headache in bear market and is definelty bad in bull markets that go above the stike level of the embedded option.

[fillippone]

[NEWS] SEC approves Nasdaq Bitcoin Index Options (QBTC) — another brick in the institutional wall
The SEC gave the green light on May 22 to Nasdaq PHLX to list cash-settled, European-style Bitcoin index options under the ticker QBTC.

Bitcoin options are coming to Nasdaq. Here's what it means for you

Nasdaq has moved closer to offering cash-settled bitcoin index options, a move set to democratize crypto risk management and eliminate legacy operational barriers.

Each contract represents exposure to 1 BTC, far smaller than CME's 5-bitcoin contracts, and tracks the CME CF Bitcoin Real Time Index, settling in USD — no custody, no crypto-native plumbing required, same brokerage account you use for equities.

Trading hasn't started yet — CFTC and OCC approval are still pending — another few months' worth of waiting.

At the moment, the competitors are options on the  CME futures, with a hefty 5 BTC lot size exposure, and IBIT options (on BlackRock's spot ETF), which are American-style, physically deliverable into ETF shares.

QBTC goes after a different use case: pure index exposure — no ETF tracking error, no management fee drag, no counterparty to the fund. The European-style settlement means cleaner pricing (no early exercise premium to model).

 IBIT options capture institutional flow, structured products, and institutional overlays; QBTC targets smaller retail flows nd pure directional, leveraged plays.

Different use cases: time to grow the market before trying to compete.