Despite the recent decline in the US CPI inflation report, investors are still willing to pay a premium for short-term downside protection, according to a new analysis of Chicago Mercantile Exchange (CME) Bitcoin futures options by CF Benchmarks.
CF Benchmarks analysts noted that although Bitcoin broke above $66,000 following yesterday's softer inflation data, there was “higher implied volatility for out-of-the-money (OTM) put options compared to call options.”
This willingness of derivatives traders to pay high premiums for OTM put options is considered a bearish trend among short-term market indicators, according to analysts. The increased implied volatility (IV) for OTM put contracts suggests that traders are essentially hedged against a potential decline in BTC value.
Implied volatility is a measure used in the options market that represents the market's estimate of the likely future movement or price fluctuations of an asset or security.
However, the short-term outlook contradicts analysts' observations about long-term prospects. They noted a “flatter” volatility curve between long-term puts and calls, with a slight bias towards calls. “This suggests that investors are more optimistic about Bitcoin's long-term prospects, and it is worth watching to see whether the buying trend will increase if disinflation expectations begin to accelerate after the positive CPI report,” the analysts said in an email.
The CF Benchmark analysis also said longer-dated puts and calls are relatively flat, which could indicate increased institutional participation “as these investors are less prone to extreme swings in sentiment.”
*This is not investment advice.