Bitcoin (BTC) put options are currently undervalued, providing a rare opportunity for bullish traders to acquire downside hedges at reduced prices, according to data analytics firm Amberdata. The underpricing of these options has been identified through the ratio of implied volatility for 25-delta out-of-the-money BTC put options and the 30-day implied volatility of at-the-money options, which has dipped below 1.00.
This ratio suggests that 25-delta put options listed below bitcoin's current price are undervalued in terms of volatility compared to those near the spot price. Implied volatility, which reflects expected price fluctuations, is an indicator of options demand.
Put options grant the holder the right to sell the underlying asset at a predetermined price by a certain date and are typically purchased by bearish traders. On the other hand, bullish traders often buy call options. However, they may also purchase puts as downside protection against potential price corrections.
The discount on these put options has emerged as traders rush to add bullish exposure through calls amid bitcoin's price rally surpassing the $36,000 mark and extending October's 28% gain. Despite this opportunity for cheap hedges, puts have seldom traded at a consistent discount for extended periods since early 2022 due to the bullish market sentiment and decreased demand for downside protection.
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