As the U.S. presidential election nears, bitcoin options are showcasing a surge in bullish bets and heightened volatility. Traders are preparing for notable price fluctuations, evident in the options market reflecting increased expectations of volatility.
The implied volatility, which measures anticipated future price changes, has escalated as derivatives traders speculate on potential price increases or hedge against possible downturns for options expiring after the U.S. election on November 5.
Analyst Rick Maeda from Presto Research observed significant activity in call options with expiration dates at the quarter's end, particularly on December 27. "Trump’s implied election odds from Polymarket reached their highest levels since early August this week," Maeda commented.
Maeda noted a marked increase in long out-of-the-money (OTM) call flows for the next two quarterly expiries, with 64.53% of flows focused on December 27, 2024, and 79.79% targeting March 28, 2024. This trend signals a robust bullish outlook.
Despite the bullish sentiment in options, the futures market presents a more cautious narrative. "Futures traders seem to be wary ahead of the U.S. election due to uncertainties surrounding both the election and the Federal Open Market Committee (FOMC) meeting two days later," Maeda explained.
Open interest in bitcoin perpetual futures has remained stable since the second quarter, with neither the OI-weighted nor volume-weighted funding rates skewed towards extreme positions. Currently, the 10-day average annualized OI-weighted and volume-weighted funding rates are in the low 7% range, contrasting sharply with the 50% levels seen in early March when positioning was extremely long.
Analysts anticipate significant volatility as the U.S. election approaches on November 5. Vertex co-founder Darius Tabai highlighted the increasing premiums on bitcoin options expiring post-election, particularly around dates like November 8 and December 27. "The spike in forward volatility indicates that the market is pricing a premium for the election due to expected event risks around the results," Tabai stated.
Presto Research's analysis further supports the notion of an election premium in bitcoin's implied volatility, estimating an 8% premium ahead of the November 2024 election due to expected heightened volatility during this time. The report noted a loose correlation between this bitcoin options "election premium" and Trump’s odds in prediction markets.
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