BTC Price Index and Live Chart – CoinDesk”>(BTC) options now look cheap and some traders are taking advantage of the same to raise bullish bets.

Options are derivative contracts which give the buyer the right to purchase or sell an underlying asset for a set price at a future date. Call options give traders the right to purchase and allow them to profit or hedge against price increases, while put options do the opposite.

Options are considered cheap by traders when implied volatility, a key factor in determining the price of an option, falls below the long-term average, or the realized volatility of the asset. Implied volatility is a range of one standard deviation of expected price movement for the underlying asset over the course of a year. It tends to mean-revert. Actual volatility is the actual price movement.

Bitcoin’s implied volatilty (IV) reached a high last week with the launch in the U.S. of spot ETFs. Since then, it has fallen below the actual volatility. This has fueled demand for calls on strikes at $45,000 and $466,000 during the North American trading hours of Thursday.

Paradigm stated in a Telegram message that they had seen a lot of call buying and straddles in the $45k/$46k strike. “BTC implied volatilty trades at a level that is well below the actual volatility. We are therefore not surprised by Paradigm’s customers who play for a sharp rise in spot and vol.”

Outright call buying suggests that the calls bought were probably standalone trades. They bet on renewed price volatility and are not part of any complex strategy. Since the beginning of 2023, Bitcoin’s implied volatility and price have been positively related.

A Straddle involves the simultaneous purchase of both call and put options with the same strike price. The strategy is designed to take advantage of an anticipated spike in implied volatility, and the rise in option prices that follows.

Bitcoin’s price has fallen over 15% since its debut on January 11, and briefly fell below $41,000 as late Thursday night.

Parikshit Miishra is the editor.