Amid the hustle and bustle of the digital currency market, Bitcoin has been the center of attention. Recently, the number of Bitcoin options has soared by a full 1,000%, and this astonishing growth has sparked speculation about the trend of Bitcoin spot prices. Will this surge in options trading lead to an increase in Bitcoin spot prices? Let's analyze it in depth.

 Bitcoin options surge

The prosperity and surge in the Bitcoin options trading market has attracted widespread attention. Investors have joined the trend in hopes of gaining more benefits through options trading. According to data, the number of Bitcoin options has soared by 1,000% in just one month, a figure that has shocked people. What kind of market logic is hidden behind this surge?

 The impact of options trading on Bitcoin spot

As the volume of Bitcoin options trading has surged, market sentiment has also fluctuated. Some people believe that the activeness of the options market will directly affect the trend of Bitcoin spot prices. They believe that a large number of options trading may cause fluctuations in Bitcoin spot prices and even further drive prices up. However, this view is not uncontroversial.

 Industry expert views

In the Bitcoin market, experts have different views on the impact of the surge in options trading on spot prices. Some experts believe that the boom in the options market may drive up the spot price of Bitcoin, because investors tend to buy options when they expect the price to rise. However, some experts point out that the boom in the options market does not necessarily lead directly to an increase in spot prices, because options trading reflects investors' views on future price fluctuations more than directly affecting prices.

 Empirical data analysis

Based on the analysis of historical data and market trends, we can find that the surge in the number of Bitcoin options transactions does not always lead to an increase in the spot price of Bitcoin. Past data show that there is no necessary positive correlation between the activity of the options market and the spot price of Bitcoin. This shows that changes in the options market are not the only determinant of Bitcoin spot price fluctuations.

 Risks and opportunities coexist

In the Bitcoin market, risks and opportunities coexist. Although the surge in Bitcoin options trading may bring a certain degree of market volatility, investors also need to be wary of the risks involved. The uncertainty and volatility of the market make investors face huge risks and challenges while pursuing profits. Therefore, when participating in options trading, investors need to be cautious and develop reasonable risk management strategies.

 Conclusion

The phenomenon of a 1000% surge in the number of Bitcoin options has triggered speculation and discussion about the trend of Bitcoin spot prices. Although active options trading may have a certain impact on spot prices, we need to realize that market trends are affected by a variety of factors, and it is not appropriate to simply equate a surge in options trading with a rise in spot prices. Investors should remain rational and prudent in dealing with market fluctuations, seize opportunities while also paying attention to risk avoidance to achieve a stable return on investment. I hope that every investor can maintain risk awareness and pursue long-term and stable investment returns while gaining rich returns in the digital currency market.

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CME’s Bitcoin options volume has increased by 1,000% this month as institutional investors build short-term bullish positions, but will the spot price of BTC rise?

The Bitcoin (BTC) options market is finally taking off on the CME. This week Cointelegraph reported that total trading volume over the past ten days exceeded $140 million as institutional investors entered call options.

The buyer of a call option can receive Bitcoin at a fixed price on a predetermined date. To obtain this "privilege," investors pay the call option seller an upfront fee.

CME Bitcoin options trading volume in USD. Source: Skew

As the uncertainty surrounding the halving becomes less risky, institutional investors are starting to increase their bullish positions. Although more complex than futures trading, the options market still allows investors to leverage their positions without the risk of liquidation.

Open interest is a more relevant indicator

Simply put, open interest is the total number of contracts held by market participants. Imagine a scenario where a call option worth $70,000 is traded in one week and reverted the following week.
Both buyers and sellers will close their positions and risks. Although $140 million was traded, the market exposure (open interest) in this scenario would be zero.

CME Bitcoin Options Open Interest - USD. Source: Skew

According to the chart above, the last two weeks’ trading volume matches open interest. This indicates that the position has not been closed so far. Most trades are short-term call options contracts.

CME Bitcoin options contract settlement. Source: CME Group

Remember, CME Group displays open interest externally. Since each CME contract requires 5
BTC, so the minimum trade notional amount for the $10.000 strike price is $50.000. This makes the CME Group different from other markets where it can trade as low as 0.10 BTC.

At the May 29 expiry, CME traded 1.800 call option contracts, equivalent to $90 million. The current open interest for the June 26 expiry is 800 contracts, which is approximately $40 million in nominal terms. The strike price or contract expiry price starts from $
9.700 dispersed to $13.000.

What are buyers’ expectations?

Such trades are certainly bullish indicators for professional investors. The total cost of creating such a substantial exposure was more than $5 million. Unfortunately, there's no way of knowing how many institutional clients were involved.

On the other hand, it can be safely assumed that such investors establish short-term bullish positions.
CME options contracts are deliverable, which means that Bitcoin futures contracts will be given to call option buyers. Investors could sell these futures immediately to wait for market liquidity, although this buying trend indicates underlying long-term market optimism.

What sellers expect

Selling a call option with unlimited downside in exchange for a fixed upfront price seems unreasonable. This strategy changes dramatically if the seller previously owned Bitcoin, or gained exposure using CME futures.

This strategy, known as a "hidden call," allows investors to set a maximum limit on their gains while lowering their average entry price. Although this is not a leveraged bet, this could be interpreted as a short-term bearish trade.

Monitor potential Bitcoin price impact

The first thing retail traders should pay attention to is CME options expiration dates. One should also pay close attention to the put/call ratio, as call options often indicate a bullish strategy.

Bitcoin options put/call ratio. Source: skew

The CME's recent call option movement has caused the indicator to reach its lowest level ever. As of now, call options dominate 88% of current open interest.
Skew’s indicators include LedgerX, Deribit, BAKKT, and CME.

Buyers of such call options have a strong incentive to increase the price of Bitcoin at each expiration. For covered call sellers, there is no benefit in pushing the market further away from the strike price, but it also cannot suppress it.

As options markets become more correlated, each expiration has potential triggers to add to price pressure.