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Understanding the Dominance of Put Options in Crypto Trading During COVID-19 Crisis

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On April 19, it was reported that according to the transaction data of Deribit, the crypto options trading platform, 65.5% of the transaction volume of Deribit\’s options in the pas

Understanding the Dominance of Put Options in Crypto Trading During COVID-19 Crisis

On April 19, it was reported that according to the transaction data of Deribit, the crypto options trading platform, 65.5% of the transaction volume of Deribit’s options in the past 7 days was to buy put option, and 32.8% was to sell put option; The trading volume of call option only accounts for 2%.

Data: In recent 7 days, the trading volume of call option on Deribit platform only accounted for about 2% of the total trading volume

As per the transaction data of Deribit, the popular crypto options trading platform, the past week has seen an unprecedented surge in the trading of put options. 65.5% of the total transaction volume of Deribit’s options were recorded as put option purchases, indicating that traders are betting big on the market going down. In contrast, the trading volume of call options has remained nominal, accounting for only 2% of the total transaction volume.
In this article, we will delve deeper into the trend of put options during COVID-19 crisis, try to decipher the reasons behind this growth, and assess the potential outcomes of such a trend.

The Trend of Rising Put Options during COVID-19 Crisis

The COVID-19 pandemic has brought in several challenges, including economic shockwaves to investors and traders all over the world. As per recent reports, the global economy is projected to shrink by almost 3% in 2020. With such economic downturn hitting the world, the instability of traditional financial markets has led traders and investors to bet on safer investments.
Put options are one of the primary trading mechanisms that provide traders with the option to sell assets when the price falls below a predetermined value. With the downward trend in stock markets across the globe, traders are investing in put options to ensure that they can sell their assets when the market hits rock bottom. In such a scenario, the traders can secure profits even when the market is going through a rough patch.
Moreover, the cryptocurrency market has always been volatile and unpredictable, and the current crisis has amplified these adverse circumstances.

Exploring the Reasons for the Surge

One of the primary reasons for the surge in put options is the fact that during a crisis, traders are always risk-averse. They look for safer investment options that can safeguard their finances.
Another reason contributing to the put options’ surge is the uncertain nature of the cryptocurrency market. As mentioned above, the cryptocurrency market has always been volatile, and COVID-19 has further amplified its unpredictable nature. Traders are not willing to take a risk with their investments, so they prefer put options, which provide them with a safety net.
Additionally, put options are an attractive choice for traders looking for flexibility in trading. The significant volume of put options trading indicates that traders are inclined towards investing quickly and securely.

Potential Outcomes of the Surge

While the current trend of put options’ growth appears to be a safer investment avenue, it is also indicative of the traders’ pessimistic outlook on the market. The dominance of put options suggests that traders are not optimistic about the market’s future and are bracing themselves for a bearish run in the future.
Furthermore, with the crypto options trading platform governing the market, the increase in put options trading also indicates a shift towards a bear market in the cryptocurrency industry. This trend is not necessarily catastrophic for the industry, as it may stabilize it in the long term.

Conclusion

The surge in put options trading in the crypto industry during the COVID-19 crisis indicates traders’ inclination towards safer, more secure investment options. While the trend may seem pessimistic, its presence ensures market stability in the long run. Traders and investors should continue to observe the situation, adjust their portfolios accordingly, and be cautious with their investments.

FAQ

1. What are put options?
Put options are a financial instrument that provides traders with the option to sell assets when the price falls below a predetermined value.
2. Why are traders investing in put options during the COVID-19 pandemic?
The COVID-19 pandemic has brought the world economy under substantial distress. Due to this, traders are averse to risk and are investing in put options that provide a safety net for their investments.
3. What is the potential outcome of the current trend in put options’ growth?
The current trend suggests a pessimistic outlook on the market by traders. The dominance of such trading may indicate a bear market in the long term. However, this trend also ensures market stability, leading to substantial economic growth.

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