Bitcoin (BTC) broke the $ 50,000 level on February 16. Although he was unable to overcome the psychological barrier, he undoubtedly demonstrated the possibility of higher values.
In the meantime, options on futures and options were inconsistent, indicating excessive buyer’s influence, while options markets remained calm. Analyzing both markets, one can guess the reason for this apparent discrepancy.
The various options remained neutral or positive.
When analyzing alternatives, the most relevant procedure is 25% delta deviation. This indicator compares similar buy (buy) and sell (sell) options side by side.
It will be negative if the premium on the put option is higher than on a put option with the same risk. A negative bias means higher protection costs than the opposite, which indicates growth.
The opposite is true when producers in the market are bearish, which gives a positive reason for the 25% delta rejection index.
An indicator with a bias between -10% (slightly bullish) and + 10% (slightly bearish) is considered normal. There hasn’t been a single 30-day shift of 10% or more in the past 3 months, which is generally considered a bearish event.
This data is very encouraging considering that Bitcoin corrected by 24% on January 11 and 10 days later by 19%. However, there was no evidence that options traders demanded higher bonuses to protect against harassment.
Future levels of insurance premiums were very optimistic
By measuring the gap between the value of a futures contract and the regular spot market, a trader can determine the level of an uptrend in the market.
Three-month futures contracts are usually traded at a (base) premium of 6% to 20% (base) compared to regular spot exchanges. When this indicator turns off or becomes negative, it is an alarming red flag. This situation is known as a “reset” and indicates that the market is on a downward trend.
On the other hand, a solid base indicates over 20% over-influence from buyers, creating the potential for mass liquidations and potential market crashes.
The chart above shows that the index fell 1.5% on Jan 27, but later dropped to 4.5% and higher when Bitcoin returned above $ 35,000. Even during the darkest periods, the futures premium remained above 10% of the annual interest rate, which indicates the optimism of professional traders.
Meanwhile, the current level of 5.5%, corresponding to 50% on an annualized basis, indicates excessive buyer’s influence. Permanent futures contracts (reverse swaps) can be the root of this problem, and retailers use these contracts to a large extent.
Note that the funding rate exceeded 2.5% per week and thus exceeded 50% of the annual premium compensation for the March contracts.
This is why arbitrage bureaus and market makers are more likely to pay such a higher premium on fixed monthly contracts with shorter permanent futures and interest rate gains.
In conclusion, this move fully explains why options markets are relatively neutral, while futures markets show the influence of overbought buyers. While institutional clientele and whales dominate in the number of options, retailers appear to be the main reason for the mismatch.