As the U.S. presidential election approaches, traders are bracing for increased volatility in Bitcoin price, and options markets are reflecting heightened expectations of volatility.
Implied volatility, a measure of expected future price movements, has increased as derivatives traders are likely speculating on potential price increases or hedging downside risk on options expiring after the U.S. election on November 5.
According to one analyst, much of this activity is focused on call options expiring at the end of the quarter, particularly on December 27. Presto Research analyst Rick Maeda noted that there has been a clear increase in bullish bets on long-term Bitcoin options expiring on December 27, 2019. The end of the year. “The odds of Trump being elected in Polymarket hit their highest level since early August this week,” Maeda told The Block.
“Out-of-the-money (OTM) call flows for the next two quarterly expirations are showing a notable increase, with 64.53% of flows targeting the December 27, 2024 expiration date, and March 28, 2024. It recorded 79.79% of the flow, indicating a strong optimistic outlook for the future.”
However, the analyst noted that futures markets are telling a more cautious story. “Futures traders seem to be quite cautious going into the U.S. election due to the uncertainty surrounding the U.S. election and the Federal Open Market Committee (FOMC) meeting two days later,” Maeda said.
The analyst added that open interest on Bitcoin perpetual futures has remained relatively stable since the second quarter. Both OI-weighted and volume-weighted funding rates are not biased toward extreme positions. “Both the 10-day average annualized OI-weighted funding rate and volume-weighted funding rate are currently in the low 7% range, which is in stark contrast to the 50%-plus levels in early March of this year when positioning was extremely long,” Maeda said. explained.
Volatility is expected to increase significantly around the US election on November 5th. Image: Vertex.
Option price rise due to election premium
Vertex co-founder Darius Tabai said there is a premium on options expiring on key dates such as November 8 and December 27 as the market anticipates significant price movements, citing an increase in the cost of Bitcoin options set to expire after the US election. emphasized.
“The surge in futures volatility shows that the market is pricing a premium for the election and anticipating event risk as a result,” Tabai said. He added that this shows that the market has clear expectations that cryptocurrencies will have a significant impact in the US election. He added, “The surge in implied volatility is a reflection of traders speculating on it or trying to hedge their risk.”
Presto Research’s analysis also points out that there is an electoral premium on Bitcoin’s implied volatility. “We estimate an 8% premium to IV ahead of the November 2024 election, reflecting market expectations of heightened volatility during this period,” they said. The Presto Research report added that this Bitcoin options “election premium” has shown a loose correlation with Trump’s odds in prediction markets.
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