Bitcoin options traders are betting on lower prices, so why would this be a good sign? With the increasing volatility in the cryptocurrency market, more and more traders are choosing to keep their open positions. cryptocoin.com Now we look at the details.
Bitcoin options and volatility
With the volatility in the cryptocurrency market, more and more traders have chosen to hedge their positions through options contracts. However, with the current buy/sell ratio, some inexperienced investors may receive false signals about the current state of the market. How do traders use options? Options contracts are a highly volatile asset that, when purchased at the right price, can provide traders with a huge return, but professional traders and investors never use them for trading. The main purpose of options is to maintain your main position in the market.
Traders can hedge their long positions in the market by using put options. When the price of an asset quickly pulls back and a correction begins, the price of options contracts will increase exponentially and cover the losses from a long position. If an asset moves in the planned direction, traders may abandon the option and lose contract fees, which are often significantly less than the size of the position covered.
Why might it be a good signal? With the growing open interest in put options, it could be a sign of increased hedging volumes in the market. Generally, a large number of hedged positions is a sign of a healthy market. Bitcoin shows an increase in overall volatility after reaching a new ATH and then quickly returning below $60,000. Due to the increase in volatility, some traders have chosen to hedge their unrealized positions using options contracts, make a profit if there is a sudden collapse, and then reopen their positions at a lower price, which will give the market initial support for a new rally.
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