Over the past three weeks, $ 150,000 of $ 50,000 Bitcoin (BTC) call options have been traded at the June and December 2021 price target. The derivatives exchange LedgerX traded these ultra-bullish trades, but what could be the reason for this?
There are some good reasons to buy options with such a small chance of winning. However, it doesn’t seem very reasonable to pay USD 1,000 for the privilege of buying Bitcoin 440% above the current price in 18 months.
Even considering an annual volatility of 100%, which is quite high even for Bitcoin ratios, The price is less than 8% likely to hit $ 50,000.
The seller of the call option risks
The seller of this purchase option has an unlimited disadvantage if the price, reason or circumstance exceeds USD 51,000 and the seller pays USD 1,000 in advance for this obligation.
For comparison, The December 2021 call option costs $ 25,000 and $ 1,750. This buyer will receive $ 13,250 when the Bitcoin price reaches $ 40,000, which is a healthy return of 650%.
On the other hand, The buyer of the $ 50,000 option would not earn anything with this massive increase to $ 40,000.
Possible justification for such an upward trend
Lately, the entire crypto space has been heavily focused on options and futures instruments, but in reality it doesn’t make sense for retailers to buy such expensive options, even for the most optimistic.
There’s really no way to know the reason that drives these immensely optimistic investors.While this could be a bullish buying spread.
In this phase, The investor would buy the most expensive $ 25,000 call option while selling his $ 50,000 buy option. This makes more sense as current spending is reduced to $ 750 instead of $ 1,750 while massive profits are made from a potential bull run.
Gains / losses for spreading bullish purchases. Source: Optioncreator.com
The graph above shows the performance of the spread in bullish buy trading. Although this strategy is still very optimistic, it offers positive returns for levels above $ 25,750.
A previous bet of $ 50,000 in 2018 was not worth it
In December 2017 Blocktower Capital paid $ 1 million for $ 50,000 call options with a twelve-month term. At the end of 2018, the CIO of Blocktower, Ari Paul, explained that it was a volatility operation because they were selling BTC and other assets at the same time.
There is no way to estimate the profit or loss of a trade, but the $ 1 million definitely lost.
The views and opinions expressed here are solely those of author and do not necessarily reflect Cointelegraph’s views. Every investment and trade movement involves risks. You have to do your own research when making a decision.