The Deribit DVOL index, which predicts 30-day price volatility, has reached an annualized 76%, the highest since November 2022. Traders are “overwriting calls” to profit from rising volatility. Deribit trades bitcoin calls at $200,000.
Deribit's bitcoin volatility index, DVOL, reflecting market players' 30-day price predictions, has risen. The increase is beneficial for bitcoin {{BTC}} holders seeking more income from the options market.
According to TradingView, the 30-day implied volatility index rose from 41% to 76% in one month, reaching its highest level since November 2022. Increased implied volatility boosts the price of options or derivative contracts that allow the buyer to buy or sell the underlying asset later. A call allows buying, whereas a put allows selling.
Volatility increases option premium. Thus, clever investors "overwrite" or sell call options to supplement their spot market holdings during high implied volatility. One of the most popular stock market tactics. Calls are frequently traded above the underlying asset's market rate.
The money received for selling a call or insurance against price rallies is kept if the underlying asset never climbs over the strike level. Premium yields are added to spot market investments. If the stock price exceeds the strike price, the investor must sell it and keep the call premium. (Traders without spot market holdings can sell calls, but it's dangerous with limited gain and large losses.)
Overwriting calls may be revived by the DVOL surge. According to Deribit Asia business development manager Lin Chen, 250 contracts of $75,000 December call options were sold on Tuesday. Seller earned $4.258 million premium. One Deribit options contract equals 1 BTC.
Chen said, “The seller probably has a large stock of BTC in hand and can directly lock in the profit from $75,000.” Bitcoin has risen 58% this year on Deribit, which comprises for 85% of the global crypto options market, to trade at its record highs near $69,000.
Laevitas data shows a record $32 billion in crypto futures and options notional open interest. Nearly $30 billion comes from options. Recently, the exchange has seen good trading in calls at $200,000. Some experts expect bitcoin's positive trend to peak around $200,000 by September 2024.
High strikes are desired for longer expiries, including March. Deribit chief business officer Luuk Strijers told CoinDesk that $200,000 calls in June, September, and December trade well. “The ETF-triggered hype is no longer just about BTC passing $100,000, but now even $200,000,” Strijers remarked.
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