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- Crypto market is now ready for trader betting on prices of underlying assets
- The implied volatility of Bitcoin and Ethereum has been observed below their historical volatility
- In such a current environment, it is observed that traders use strategies like straddles and strangles
Crypto market has the options market where the traders are always betting on the prices of assets. Ultimately, the traders are betting on the volatility of the digital assets, whether the price will surge or plunge. However, few market experts have deemed that now the market is ripe for such activity in the current scenario. According to Genesis Volatility, the implied volatility of both Ethereum and Bitcoin is observed below their relative volatility. It is also known that volatility has a positive impact on options price.
Crypto market indicates its time for options trade
According to Genesis Volatility, BTC’s short-dated option has revealed that the volatility is below the historical level. Simultaneously, ETH’s volatility has also hugely been reduced in the current scenario. Hence, when the volatility trades below previous levels, it’s a clear indication that the crypto market is underpricing. And there is a likelihood for future price turbulence in comparison to current price turbulence.
The aforementioned factor clarifies that the current volatility could potentially rise and converge with and cross the historical levels. Ultimately, the fact will boost the option’s prices and yield profits. Following the situation, it seems now is the time for options trading that will be interesting.
Bitcoin and Ethereum volatility performance
According to the data from Genesis Volatility, it is observed that Ethereum’s 10-day implied volatility is trading at 87%. And the chart is below the 10-day realized volatility of 97%. In terms of Bitcoin, it is observed that the 10-day realized volatility is trading below the 10-day historical volatility.
Following such situations, few traders take advantage of this by acquiring market-neutral strategies. Such strategies include straddles and strangles, which also involves purchasing equal numbers of calls and puts that benefits from a spike in volatility.
What is the best strategy for the current environment?
According to Luuk Strikers, the founder and CCO of Deribit, strategies like long straddles and strangles are used when volatility is expected to increase. Hence, with such strategies, the risk gets predefined with the maximum loss limited to the extent of premium. However, as theoretically the underlying asset could rise to infinity in such conditions, the returns can be sizable.
