Summary
This is an excerpt from CoinDesk newsletter ‘Daybook.’ Sign up here, if you haven’t already.
Bitcoin’s BTC$62,410.39 volatility is cheap, particularly on the bullish side, heading into Friday’s $10.5 billion quarterly options expiry, as reported by dominant derivatives exchange Deribit.
The exchange’s bitcoin volatility index, DVOL, which measures the annualized 30-day expected, or implied, volatility, is trading at 41.5%. That’s well below February’s peak of 90%, though not quite as cheap as May’s lows.
“Vol is cheap relative to its own history but no longer at fire-sale levels,” Jean-David Péquignot, chief commercial officer at Deribit, told CoinDesk.
Cheap volatility means traders are pricing in smaller price swings for the largest cryptocurrency than they have for most of the past year. This makes options, contracts used to hedge against price swings, cheaper to buy. Volatility is stated to be mean-reverting, so traders often buy options, or bet on volatility, when it appears cheap relative to its key averages.
Péquignot stated volatility for calls is significantly cheaper than for puts, explaining the relative attractiveness of call spreads, a bullish strategy.
