How Is the Options Market Reacting to Bitcoin’s Continued Decline? (Glassnode)

Traders are now paying more for immediate downside protection, with continued defensive positioning.

Within the last seven days, BTC has taken a backseat while gold performed well. The precious metal has taken some share of bitcoin’s status as a store of value, surging by more than 20%. BTC, on the other hand, is down at least 14%, triggering a shift in investor sentiment.

Glassnode analysts say the change in market sentiment has been reflected in the options market. Bitcoin’s dip, especially the last overnight decline, came with a wave of macro uncertainty, and investors have been altering their positions to navigate the current environment better.

Options Market Reacts to BTC Decline

According to Glassnode, the market witnessed a sharp spike in short-dated volatility after bitcoin’s sudden plunge on Thursday night. As a result of that, traders are now paying up for immediate protection, as seen in front-end options trading implied volatility hovering around 50% volume.

Options skew is strongly favoring put calls as BTC increasingly behaves like a macro asset. This indicates continued defensive positioning, with downside protection more expensive than upside exposure.

The Options Net Premium Strike Heatmap suggests that flows into the market have been fairly balanced. Although some accounts have rolled their protection lower or leveraged the decline to sell volatility, others have picked cheap calls. Glassnode said this reflects a cautious, but not one-sided tone.

Investor Sentiment Stays Defensive

On a broader scale, the options market paints a defensive picture. Skew is leaning toward puts, wing volumes are bid, and demand is steady for tail hedges. Additionally, demand for downside insurance is dominating.

Glassnode explained that many options accounts had year-end upside exposure. However, downside volume now dominates, with the upside momentum having cooled. The analytics firm said traders who can handle the risk will find selling their puts or put spreads to finance possible November upside attractive. However, with the state of the market, only a few will be strong enough to take this path.

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Meanwhile, CryptoPotato reported earlier that $4.8 billion in options contracts expired this weekend. A little larger than last week’s, this expiry affected more long than short contracts. This mirrors the bearish sentiment that has engulfed the spot market. With the market already deep in negative territory, the multi-billion dollar expiration could trigger more bloodshed or no reaction at all.