The fall of $ 900 (BTC) in Bitcoin over the last two days can be scary for beginners, but those who trade futures and options do not seem to be scared.
When Bitcoin raised to $ 11,000 on September 19, investors could be very enthusiastic as the price briefly broke through an important level of resistance.
The steady rally continued for ten days, bringing Bitcoin’s dominant position back to a 15-month low, pushing some traders back to the $ 12,000 level.
This sentiment began to change when it became clear that Bitcoin would not be able to maintain $ 11,000, and the adjustment to $ 10,300 encouraged some analysts to fill the gap of less than $ 10,000.
While retail investors may be intimidated by a small correction, professional investors measure market conditions and emotions using tools other than those used by day traders and traders.
Indicators such as bases, options deviations and open interest rates provide real-time data on how professional traders have adjusted after falling to $ 10,300, as well as a short bounce in BTC to $ 10,500.
Contracts and settlements provide insight
The first step that professional traders use is to look at potential open interest rate data to measure the total value of active contracts. When the trader’s positions are wound up due to insufficient margin, the exchange automatically closes its positions.
As shown below, total open interest in BTC futures fell below 5% to just over $ 4 billion. Current figures are stable from last week and indicate that the liquidation was not significant due to insufficient margin.
Long long positions under water can undoubtedly add more means to prevent forced closure of the positions. To assess whether it is true that yesterday’s sharp fall in prices did not affect the liquidation, we must analyze the basis for the futures contract.
Is it delay or delay?
The basis, also called the futures premium, measures the premium on long-term futures contracts at the current level (normal markets). Professional traders tend to be more active than selling these instruments because expiration dates are difficult to manage.
These fixed monthly deals are usually traded at a small premium, indicating that sellers are asking for more money to stop the settlement for an extended period of time. In healthy markets, futures contracts must be sold at an annual premium of 5% or more, known as contango.
The chart above clearly shows that the (underlying) futures premium has not left its bullish position, and maintains an annual level of around 6%. Except for a brief moment on September 3, when Bitcoin faced a fall of $ 2000 in two days, the underlying index fell above 5%.
However, the reason for this rally may be factors that are not directly related to the bullish trend of traders. If competing decentralized financial products (DeFi) offer high incentives for cryptocurrency deposits, sellers will demand a higher premium on futures contracts.
To illustrate this uncertainty, one should turn to the Bitcoin option markets. Purchase options allow the buyer to have a fixed BTC price when the contract expires. On the one hand, put options insure buyers and protect against falling bitcoin prices. For this privilege, the buyer pays an advance premium to the seller in accordance with the contract.
As market makers and professional traders try to grow, they will demand a higher premium on call options. This trend will result in a negative delta deviation index of 25%.
The opposite will be true when large investors are concerned about price adjustments in the short to medium term. Sell (sell) options that protect against falls should be traded at a higher premium than buy (buy) options under bear markets. This situation will result in a positive delta deviation index of 25%.
Although there is no hard and fast rule, the 25% delta rejection indicator, which varies from 10% negative to 10% positive, can be considered neutral. Figures below this range indicate an upward trend, and this is currently the case.