Crypto traders should consider rotating money out of Bitcoin (BTC) and into bullish call options to optimize their returns, according to crypto services provider Matrixport. Lower volatility has made option prices cheaper, said Markus Thielen, head of research and strategy at Matrixport, allowing investors to lock in the year-to-date gains for Bitcoin, while the call option exposure allows participating in any upside rally.
Call options give traders the right to buy Bitcoin at a stated price by a specific date. Put options grant the right to sell. A call buyer is implicitly bullish on the market, while a put buyer is bearish. Options prices are influenced by the option’s strike, time to expiration, interest rates, and implied volatility – expectations for price turbulence over a specific period.
Bitcoin’s 30-day realized, or historical, volatility has declined to an annualized 28%, the lowest since January. T3I’s BitVol Index, which gauges expected price turbulence in the crypto over four weeks, recently dipped to 40.47, the lowest reading since at least early 2019. This has made options cheaper and traders prefer buying options when volatility is unusually low.
More importantly, this year, a positive correlation has developed between implied volatility and Bitcoin’s price. So, if Bitcoin’s rally resumes, call options holders will likely make outsized gains on a smaller initial investment.
Thielen suggests pocketing in Bitcoin’s YTD gain of 77% and using the freed-up capital to buy an at-the-money (ATM) call option with a notional value of 3% every month. This way, even if the market drops, investors would still end the year with a 62% net gain.