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Bitcoin’s options market is in the midst of its strongest bullish sentiment on record as the cryptocurrency hits three-year highs.
The six-month put-call skew, or the spread between the prices claimed by put options and call options expiring in six months, fell to a life low of -21.6% early Thursday, according to the Skew data source.
A call option gives the holder the right, but not the obligation, to buy the underlying asset at a predetermined price by a specified date. A put option gives the right to sell.
Skew data shows that the net demand for call options, or bullish bets, is outpacing the net demand for puts, or bearish bets, of most records. This is a sign of a buildup of strong bullish expectations in the market.
“The options market is looking for a bit of topside,” said Vishal Shah, an options trader and founder of the Alpha5 derivatives exchange.
Bitcoin broke above $ 16,000 early Thursday and hit a high of $ 16,157, a level last seen three years ago. Analysts expect the cryptocurrency to consolidate on recent gains for a couple of weeks before hitting $ 20,000 by the end of December.
The six-month put-call skew has mostly remained below zero for the past 22 months, indicating investor confidence in the cryptocurrency’s long-term prospects. However, the value has never been lower.
“The upward trend may be at an all-time high, but the bitcoin options market is almost permanently bullish. With bitcoin now flirting with $ 16,000, it is possible that this spike in bullish sentiment is coming from new market participants, “Sui Chung, CEO of crypto index provider CF Benchmarks, told CoinDesk.
Record-breaking bullish or bearish sentiment often marks the highs or lows of the market. “While it’s not always a concern, extremes tend to revert to average,” Alpha5’s Shah told CoinDesk.
However, while options market sentiment appears to have reached extremes, the cryptocurrency is still $ 4,000 below the record high of $ 20,000 recorded in December 2017. Furthermore, the average return of the bullish bias in options is unlikely if appropriate, it affects the spot market because the options market is still relatively small.
According to Chung, “The bullish bias will likely be corrected if the call premiums become too expensive, which may not be too far given the spreads for the puts.” This scenario could occur once the cryptocurrency reaches a new high.
At the moment, it doesn’t appear that investors are even considering the possibility of a temporary withdrawal. This is evident from the one month downward slant. The cryptocurrency’s sharp break above the June 2019 high of $ 13,800 paved the way for a possible rally to the previous record.
