Bitcoin falls a day after the options market saw increased demand for out-of-the-money or lower strike put options at $22,000 and $20,000.
The leading cryptocurrency was trading at its three-week low of $30,700 at the time of writing, representing a 3.5% drop on the day. The drop has flipped the crucial 50-week Simple Moving Average (SMA) support at $32,250 into resistance.
On Sunday, 500 contracts of the $22,000 put option that expired Dec. 31 changed hands through institution-focused over-the-counter (OTC) desk Paradigm. A similar volume passed the tape for the $20,000 expiring December 31.
“There was interest in buying BTC puts for December in a significant size,” said Darius Sit, CEO of Singapore-based QCP Capital. “We made the market for most of the major block trades this weekend. There was quite a bit of interest in selling BTC puts in September as well.”
Market makers are always on the opposite side of traders/investors and have a directional neutral portfolio. That essentially means that buyers of the $20,000 and $22,000 bonds that matured on December 31 were investors, most likely adding downside hedges against long positions in the spot/futures market.
A put option gives the buyer the right, but not the obligation, to buy the underlying asset on or before a specified date at a predetermined price. A put buyer is implicitly bearish on the underlying asset, in this case bitcoin.
Overall, the long-term options market is still optimistic. The six-month put-call skew, which measures the cost of puts versus calls, remains anchored below zero. In plain English, longer term calls or bullish bets are priced higher than puts.
However, the one-week, one-month and three-month put-call skew points indicate a negative bias with bearish prints.
Also read: Why Bitcoin Must Defend $30K
Bitcoin is currently changing hands at the bottom of its two-month trading range of $30,000 to $40,000.
If the $30,000 support gives away, traders who have sold puts for $30,000 in the past few weeks may resort to hedging — a short position in the futures or spot market — leading to a deeper decline.