These past three weeks saw Bitcoin consistently fail in breaking past the $9,400 resistance level, and had led to some analysts outright becoming skeptical about a positive breakout’s probability.
Pointing At One Thing And Justifying A Bunch Of Things
The support for $9,000 has been holding strong for the past 50 days, now, but this consistency causes the media and pundits to change tactics. Nowadays, they give more and more attention to any indicator that shows a slightly negative sentiment.
This can be seen on the crypto media largely focusing in on the 25% skew of Bitcoin in order to prove that Options traders are going bearish in the short-term. The reality has disappointed them, however, as there’s more to predicting Trader movements than taking a single data point and throwing out speculation.
Many Things Attributing
The options-trading concept of skew is a comparison of volatility rates within the call and put options that have the same expiration dates. A positive skew indicates that puts have larger levels of volatility than calls, which then indicates a higher insurance cost when it comes to a downside price move.
The typical assumption for this, then, is that investors hold a more bearish sentiment. This is due to how downside protection becomes more expensive than upside. Even so, once the deeper analysis is done, it’s clear that this isn’t as clear cut as it usually is
Aggregate Data Shows Different Results
The first such indicator is the fact that this level isn’t new, but it’s actually quite common to see a skew of 25% in the crypto industry. The most common such measures use a 25% delta, which basically means that options are priced with a 25% probability of actually occurring.
As it stands now, the 1-month 25% delta skew had reached its peak on the 21st of May, 2020, where it clocked in at 23%. This stands at twice the current value of 12%. At the same time, the 3-month options showed a similar movement, as the previous peaks were recorded at 6%, with the actual being at 4%. Thus, the skew right now isn’t anything out of the norm, or outright bearish, it’s just Bitcoin being what it is.
Futures Premiums Key Data Point, As Well
Another critical thing to take into consideration is the premium in the futures market when it comes to swaps and perpetual. Longer-term contracts tend to trade somewhat higher. This situation is called contango, and signals a healthy market, instead of a bearish one.
Thus, a single indicator isn’t really the way to go in providing a clear-cut picture of the market when it comes to Bitcoin options, as the industry at large is still a very new one, overall. Further distortions could happen thanks to the market makers themselves, as well, who may not be interested in piling risk on the implied volatility of the market.