Bitcoin is still struggling to recover after its price plunged almost 40 percent in April, but some bitcoin options traders are betting the No. 1 cryptocurrency will rally to six figures by the end of 2021.
A total of 425 bitcoin call option contracts, with a strike price of $200,000 — about five times the current level — and an expiration date of Dec. 31, changed hands on Thursday on Deribit, the dominant cryptocurrency options exchange, according to data analytics firm Laevitas.
A call is an option contract giving the owner the right, but not the obligation, to buy a specific amount of an underlying security at a specific price within a specific time. The specified price is known as the strike price. A call buyer profits when the price of the underlying asset increases. Call options may be purchased for speculation or sold for income purposes.
A call at the $200,000 strike price that expires on Dec. 31 is a bet that the cryptocurrency will end the year above that level.
The farther out the expiration date, the more time you have for the trade to be profitable, but the more expensive the option will be. Figuring out the balance between price and time until the contract expires is a key to success when buying or selling options, according to Fidelity.com.
The $200,000 call options with an expiration date six months away represent a long-term bet, Omkar Godbole reported for Coindesk. And because the options strike so high above the Bitcoin market price — currently $37,162.37 — they are extremely cheap, trading late this week at 0.018 BTC ($698) on Deribit.
“That makes the options the equivalent of a lottery ticket,” Godbole wrote. “Buyers stand to lose just $698 per lot if the market doesn’t move higher until Dec. 31. But the option would theoretically gain significant value if the bullish mood returns to the market.”
Embodying that bullish mood is Jesse Powell, CEO of crypto exchange Kraken, who said last week that he stands by his prediction that one Bitcoin will be worth as much as one of the most expensive cars on the market by the end of the year. With the price of the No. 1 digital coin fluctuating as much as 50 percent in a day, Powell stopped short of encouraging his audience to do anything to buy Bitcoin. “Don’t gamble your rent” on it, Powell told Bloomberg’s Emily Chang on June 3.
Low-risk gambles, when buyers stand to lose just $698 per lot, are usually seen during bull runs, Godbole wrote. For example, traders piled into the $80,000 call option in March when bitcoin was rising in price and trading at more than $50,000.
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The doom and gloom of the current market failed to dampen the enthusiasm of Bitcoin fans at the Miami Bitcoin 2021 conference. Bitcoin bull Max Keiser, who has long argued that the Bitcoin price could exceed $100,000, screamed on the conference stage, “Fuck Elon, we’re not selling.” This was in reference to Tesla CEO Elon Musk putting pressure on the price of Bitcoin with his market-moving tweets.
Of all the options listed on Deribit, the $100,000 call is the most popular, Godbole wrote. But there’s also growing interest in $300,000 and $400,000 calls.
“Broadly speaking, however, the options market has a bearish bias, highlighting persistent fears of a more profound decline,” he wrote. “The one-, three- and six-month put-call skews are currently returning positive values, indicating that puts (bearish bets) are fetching higher prices (demand) than calls.”