The cost of a $70,000 Bitcoin hedge more than doubled in a day
A November 27 put rose 127.6% between two BTC-denominated trades while its reported implied volatility fell. Read the full story on CryptoSlateUnderstand the crypto stories that matter and what to watch next. Get The Catalyst in your inbox
A Bitcoin hedge using a put with a $70,000 strike more than doubled in BTC terms between November 12 and 13, even as its reported implied volatility fell. On November 13, Deribit's broad volatility gauge hovered near 40, showing why a calm index alone cannot reveal the cost of protecting a holding.
Deribit observations from November 12–13 show its November 27 $70,000 put traded at 0.0145 BTC at 11:51 UTC on November 12 and 0.033 BTC at 10:15 UTC on November 13, an increase of 127.6% in BTC terms. Yet the implied volatility reported for those executions fell from 38.97% to 37.67%.
Bitcoin's index price at the two trades fell from $72,805.71 to $69,320.08, taking it from above the fixed strike to below it. A put provides protection against a fall below that strike at expiry. As Bitcoin falls, that fixed protection can become more valuable even without higher implied volatility.
For a new buyer at 10:40:51 UTC on November 13, the contract's order book showed a 0.0325 BTC bid and a 0.0335 BTC ask. With the index at $69,245.85, that ask equaled about $2,319.74 for one contract before fees. The 127.6% increase compares executed BTC prices, rather than measuring a change in executable asks.
Related ReadingA protective put's premium is the price of protection at a specified strike and expiry. Implied volatility is one component of that price. The underlying price, the strike, the forward price and the time remaining also matter. CryptoSlate’s crypto options platform comparison explains how contract design, settlement and execution costs differ across venues.
The two executions do not isolate how much of the premium change came from each pricing input. The contract also had less time remaining at the second trade.
The currency of the quote adds another difference. Deribit's inverse Bitcoin options are priced in BTC, and one contract represents one BTC. Converting each selected trade at its own contemporaneous index gives about $1,055.68 on November 12 and $2,287.56 on November 13. The increase in those dollar equivalents was 116.7%, smaller than the BTC-denominated increase.
The $70,000 strike also does not promise a $70,000 net sale price. The buyer pays the BTC premium upfront, and trading fees, delivery fees, currency conversion and the settlement reference affect the net result. At expiry, an in-the-money inverse put settles through an immediately settling inverse futures contract into BTC, with the economic result of cash settlement. An out-of-the-money put expires worthless.