How is the options market reacting to Bitcoin’s continued decline? (Glasnode)

Traders are now paying more for immediate downside protection, with continued defensive positioning.

Over the past seven days, BTC has taken a back seat while gold has performed well. The precious metal has taken over some of Bitcoin’s status as a store of value and is up more than 20%. BTC, on the other hand, is down at least 14%, causing a shift in investor sentiment.

Glassnode Analysts participation the change in market sentiment is reflected in the options market. Bitcoin’s dip, especially the latest overnight decline, has been accompanied by a wave of macro uncertainty, and investors have been shifting their positions to better navigate the current environment.

Options market reacts to BTC decline

According to Glassnode, the market witnessed a sharp spike in short-term volatility after bitcoin’s sudden plunge on Thursday evening. As a result, traders are now paying for immediate protection, as evidenced by the implied volatility of front-end options trading hovering around 50% volume.

The options skew strongly favors put calls as BTC increasingly behaves like a macro asset. This indicates continued defensive positioning, where downside protection is more expensive than upside exposure.

The Options Net Premium Strike Heatmap suggests that flows into the market have been fairly balanced. While some accounts have lowered their protection or taken advantage of the decline to sell volatility, others have opted for cheap calls. Glassnode said this reflects a cautious, but not one-sided, tone.

Investor sentiment remains defensive

On a broader scale, the options market paints a defensive picture. Skew is trending towards puts, bidding is on wing volumes and demand for tail hedges is stable. Moreover, the demand for downside insurance dominates.

Glassnode explained that many options accounts had year-end upside exposure. However, downside volume now dominates while upside momentum has cooled. The analytics firm said traders who can handle the risk will find it attractive to sell their puts or put spreads to finance potential November upside. However, given current market conditions, only a few will be strong enough to take this path.

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Meanwhile, CryptoPotato previously reported that $4.8 billion worth of options contracts expired this weekend. This expiration, which was slightly larger than last week’s, affected more long than short contracts. This reflects the bearish sentiment that has swept the spot market. With the market already deep in negative territory, the multi-billion dollar expiration could trigger even more bloodshed or no response at all.