Bitcoin’s 180-day skew, a measure of the spread between prices for put options expiring in six months, is hovering at record highs above 10% for the third consecutive week, according to data tracked by Swiss-based Laevitas.
Purchasing a put is akin to buying insurance against bearish moves and the option starts gaining value rapidly once the market drops below the level at which the trader has bought the protection.
Options activity has been brisk in recent weeks, which is hardly surprising as the collapse of Terra’s algorithmic stablecoin injected uncertainty into the market, forcing traders to take hedges.
While implied volatility refers to expectations for price turbulence over a specific period, historical volatility is price turbulence that has already happened.
The put bias seen at press time is significantly stronger than it was following the coronavirus-induced crash of March 2020, which saw the cryptocurrency plummet from $10,000 to $3,800.
Readers should note that in early 2020, the options market was smaller than it is today.
Bitcoin jumped 7.6% Monday, registering its biggest single-day gain since early March, as rates markets priced in slower monetary tightening by the Federal Reserve .
The top strategy last week was a short risk reversal, which involves buying a put and financing the same from the money received by selling a call.
US President Joe Biden told Fed Chair Jerome Powell on Tuesday that the central bank is independent to address inflation as it seems fit.
The cryptocurrency was last flirting with the lower end of the rising contracting triangle identified by trendlines connecting May 12 and May 26 lows and May 15 and May 31 highs.
In other words, a UTC close below the triangle support would open the doors for a re-test of the May 12 low of $25,338.