Bitcoin Options Market Hits Record Call Open Interest and Volume

Over the past week, Bitcoin (BTC) price experienced a notable surge, sparking heightened activity across the cryptocurrency market. One area that offers unique insights into traders’ sentiments and expectations regarding this price movement is the options market. Metrics such as open interest, volume, and strike prices allow analysts to gauge how traders are positioning themselves in anticipation of future price movements.

Options are financial derivatives that give the holder the right, but not the obligation, to buy or sell an underlying asset—in this case, Bitcoin—at a predetermined price on or before a specific date.

Options come in two primary forms: call options, which give the holder the right to buy the underlying asset, and put options, which give the holder the right to sell the underlying asset.

Options open interest represents the total number of outstanding (not yet settled) option contracts in the market. A high open interest (OI) indicates significant interest in a particular option, suggesting strong sentiment—either bullish or bearish—towards the underlying asset. It provides a sense of the total market exposure or commitment traders have.

Call open interest reached an all-time high of $10.86 billion on Oct. 25, rising from $7.58 billion on Oct. 18. During the same period, put open interest increased from $3.34 billion to $5.31 billion.

The bullish trend in Bitcoin’s price from Oct. 18 to Oct. 25 was accompanied by increased put and call open interests. This suggests that traders actively participated in the market, displaying historically unprecedented bullish expectations alongside healthy bearish hedging. This activity could be attributed to various factors, such as anticipated news events and increased volatility, likely related to the upcoming Bitcoin ETF in the U.S.

Graph showing the open interest on Bitcoin put and call options from Feb. 16, 2021, to Oct. 25, 2023 (Source: Glassnode)

The put/call ratio is used to gauge market sentiment as it shows the proportion of puts to calls. A ratio above 1 indicates bearish sentiment (more puts than calls), while a ratio below 1 indicates bullish sentiment (more calls than puts). The increase in the ratio from 0.425 to 0.489 between Oct. 15 and Oct. 25 suggests that while the market remained bullish (since the ratio is still below 1), there was a relative increase in bearish sentiment or hedging activity compared to bullish sentiment.

A similar increase was observed in options volume. While open interest represents the cumulative positions traders hold, volume shows the current activity and liquidity in the market. A sudden spike in volume, especially when accompanied by significant price moves, can indicate strong sentiment and momentum.

From Oct. 18 to Oct. 25, the put/call volume ratio decreased from 0.538 to 0.475. This indicates a shift towards even more bullish sentiment over this period. The volume of both puts and calls increased significantly, but call volume saw a more pronounced increase, reaching the largest in Bitcoin’s history, mirroring the record call open interest. The record call volume on Oct. 25 suggests a particularly active and bullish day in the Bitcoin options market.

Graph showing the volume of Bitcoin put and call options from Feb. 16, 2021, to Oct. 25, 2023 (Source: Glassnode)

High open interest at the $40,000 strike price further supports this bullish sentiment. It indicates that many traders anticipate or hope that Bitcoin will reach or surpass $40,000 by the expiration date of these options. While the high open interest for the $40,000 strike price shows optimism, the increasing put/call ratio discussed earlier suggests that traders are also hedging against potential downside risks. This means that while many are optimistic about Bitcoin reaching $40,000, they are also preparing for scenarios where it might not. This is evident in the spike of put options at strike prices below $27,000.

Chart showing the options open interest and market value by strike price on Oct. 25, 2023 (Source: CoinGlass)

The rise in both open interest and volume indicates that the options market for Bitcoin is becoming more active and liquid. It also shows a notable rise in interest from institutional and sophisticated traders, as most retail traders rarely stray from spot markets.