Whale Alert: $1M BTC Trade Bets on Volatility Expansion Outside $53K-$87K Range

A long straddle involving the November expiry $66,000 call and put options crossed the tape on Deribit early Wednesday.

A large bitcoin (BTC) options trade on Deribit anticipates a shift from the present low volatility regime to a period of heightened price swings, as indicated by a trade betting on a move outside the $53,000-$87,000 range.

The entity paid a net premium of over $1 million to purchase 100 contracts each of the $66,000 strike call and put options expiring on Nov. 29, according to data confirmed by Lin Chen, head of business development Asia at Deribit. The trade, known as a long straddle, is designed to benefit from a large move in either direction.

A call option protects the buyer against price rallies and gains value as the underlying asset's price rises. A put works the other way around, gaining value as prices drop.

"When discussing strangles, straddles, and ratioed straddle strategies, it is necessary to understand the buying and selling of 'premium' [options contracts]," wrote options trader Charles M. Cottle in his book "Options Trading: The Hidden Reality." "Sellers of premium want the market to sit still, and buyers of premium [straddle/strangle buyers] want the market to move."

For the strategy to turn profitable and overcompensate for the premium paid, the bitcoin price needs to move either above $87,000 or below $53,000 by the end of November, Chen told CoinDesk.

In other words, it is a bet on volatility expanding beyond the $53,000-$87,000 range. The trade will bleed money if the price remains between those levels till the end of November, with the maximum loss being the $1 million premium paid.

Chen noted that the November expiry options are seeing higher-than-normal activity, probably in anticipation of potential post-U.S. election volatility. The U.S. presidential election is due on Nov. 5, with results to be declared on Nov. 8. Some traders have recently set up bets on continued range play ahead of the elections.

"We have over $1.4 billion open interest in BTC's end-of-November expiry and a put-call ratio of 0.66, which is higher than usual," Chen told CoinDesk. "For December, the put-call ratio is 0.39. We are certainly seeing more hedging flow around the U.S. election."

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team. He covers markets, mining and anything quantitative about the cryptocurrency world. Before joining CoinDesk, Omkar worked as an equity research analyst covering materials, chemicals and renewable energy at a New York-based investment firm. He holds a Masters in Chemical Engineering from the University of Minnesota, Twin Cities and an MBA in Finance, Accounting and Real Estate from the University of Wisconsin, Madison.

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