If the past 12 months have taught investors anything, it is that bitcoin predictions are like throwing darts at the wall. From zero to $1 million, a credible, let alone correct prediction, has been hard to track down.
So maybe it would pay to take a peek at traders who are putting their money where their mouth is.
Options trading in the bitcoin market is garnering more attention with volumes on the rise. According to Emmanuel Goh, a former equity derivatives trader at JPMorgan and the co-founder of skew, a data analytics firm that tracks bitcoin futures and options data, daily volume in the options market has doubled since the beginning of the year with around $10 million traded every 24 hours.
Trading options allows investors to bet whether the price of the best-known cryptocurrency will reach a certain level at a set point in time, and looking at one of the most popular trades on the books, a sharp rally in 2019 is unlikely. “We have a $10k September expiry, which is currently priced with a 5 delta,” said Goh, speaking about one of the larger trades in the options market.
A 5 delta means there is a 5% chance bitcoin BTCUSD, +0.34% will be above $10,000 come September.
In fact, there is a $20,000 call option, which expires in three months time. A call option gives the holder the right but not the obligation to buy the underlying asset at a set price by a certain time.
That was probably “a bullish trade that was made last year when investors were still discussing the short-term possibility of making new highs,” said Goh. But, according to options traders, the probability it trades to $20,000 by June is low, in fact, it’s zero — at least according to options pricing.
Although bitcoin prices have consolidated of late and began to move higher, albeit slowly, the options market is discounting the chance a sizable rally is around the corner. “Anything above $10,000 (strike price) there has been little action of late,” Goh said, adding that there’s “very little stress” in the options market.
But the options market can turn on a dime. “One trade can trigger a lot more trading,” said Goh, meaning a single large trade could see options traders scramble to hedge any bets placed.
And what could trigger a flurry of activity in the bitcoin options market? “Above $6k we could see a change of dynamics in the market and liquidity might not be as good.”
On Friday, bitcoin traded to $4,100, its highest level in five weeks.
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