Bitcoin options traders remain neutral after 28% price drop

Bitcoin may have recovered from its low of $47,000 on April 25, but the subsequent 15% rebound has not been enough to bring optimism to the Bitcoin options market. Even at the current price of $54,000, the price is still 17% lower than the all-time high of $64,900 reached on April 14.

The Crypto Fear and Greed Index hit its lowest level in 12 months, indicating that investors are closer to "extreme fear," the exact opposite of the "extreme greed" level on April 18. The indicator collects data such as price volatility, volume changes, social media activity, Bitcoin dominance and recent search trends.

As the price of Bitcoin fell, then rebounded, the more experienced whales and arbitrageurs behind options trading were far from panicking, but their main risk indicator recently hit a 12-month peak. However, despite these "worsening" conditions, these professional traders were neutral in both the skew indicator (option pricing) and the put-to-call ratio (risk exposure).

Revised put-call ratio remains neutral

A call option gives the buyer the right to buy Bitcoin at a fixed price at a future date, while the seller is obligated to fulfill this privilege. To obtain this right, the buyer pays an upfront fee (the mark price) to the counterparty. Call options are considered neutral to bullish because they offer their buyers the possibility of obtaining high leverage with a small upfront investment.

On the other hand, put options provide their buyers with a hedging tool, or protection from negative price fluctuations. Hence, these options are widely used in neutral to bearish strategies.

Deribit’s expiring BTC open interest Source: Laevitas

As shown in the chart above, with the exception of Friday's expiration date, calls and puts are balanced. While this may reflect short-term optimism, a more specific view shows that some extremely bullish call options dominate. Therefore, by adjusting it to a more realistic price range for the next four days, the prices of call options and put options are much more balanced.

Deribit BTC open interest on April 30 Source: Laevitas

Notice how the $72,000 to $12,000 call options dominate the April 30 expiration. So, fully factoring in the $44,000-68,000 range, calls make up 48% of open interest.

Option pricing risk indicators are neutral

To correctly decipher how professional traders balance risk in the face of unexpected market moves, the 25% delta skew indicator provides a reliable, instant “fear and greed” analysis.

This indicator compares similar call (buy) and put (sell) options side by side and turns negative when a neutral to bearish put option costs more than a call option of similar risk. This is often considered a "fear" situation.

On the other hand, negative skew means higher uplink protection costs, which is often interpreted as "greed".

Deribit 90-day BTC options 25% delta skew Source: Laevitas

After being “greedy” for most of the time, the 25% delta skew flattened out for the first time in 2021. A similar situation occurred on March 25, after Bitcoin corrected 18% from the $61,800 high in the previous 10 days.

Overall, indicators from the options market are neutral, suggesting a lack of confidence in the recent rally to $47,000. On the other hand, the same indicators can be interpreted as positive, considering that professional traders have not turned bearish amid a 28% drop in the past 11 days.