Winning Big: Trader Makes Over $57M Through Bitcoin Options
The market was hit with the news that a trader turned $638,000 into $58.2 million in Bitcoin options. This is an uncommonly high return, even in the cryptocurrency market.
Massive Bitcoin Options Call Explained
Options contract data from derivatives exchange Deribit shows that a trader—or perhaps an organization or a group of traders—bought 16,000 contracts at a strike price of 0.003 BTC. In October 2020, this party made the call that Bitcoin would reach $36,000 in January 2021. The correct call resulted in a 9,000+% ROI based on Bitcoin’s current price.
The roughly 90x increase is easily one of the biggest returns made in any asset class in recent times. Traders have increasingly moved towards derivatives markets for the profit potential. Some might argue that the call was a fluke, but the trader did not close the position before January’s rise.
These kinds of returns are very rare, but they also show how traders are leveraging the derivatives market. Options and futures trading has become a key component of traders’ strategies, and even DeFi projects are jumping in.
The growth of the derivatives market shows that the cryptocurrency market is maturing. Bitcoin’s volatility had also been on the drop before the bull run, another good sign for the market. Analysts now even suggest that institutions see Bitcoin as a good hedge, and the numbers on CME support that.
Traders Turning to Bitcoin Derivatives
The Bitcoin derivatives market has been on the uptick in recent months. It has a notorious reputation for liquidating users during flash crashes, though, generally speaking, traders have become more sensible. Several of the leading options brokers have arrived on the market, and it is expected to boom with institutional investors arriving.
Options trading is a more advanced trading concept, though cryptocurrency traders take to it quite eagerly. Traders can make large profits by taking high leverage, but this is a double-edged sword.
However, the outlook for the options market going forward might be significantly different. Until now, most options trading volume has come from retail investors. However, with the large influx of institutional investors, Bitcoin options trading could see a huge change.
This is because professional investors are more likely to use the derivatives market to hedge against risks. Retail investors are prone to risk the options market to make a quick buck. But stemming losses by betting in the opposite direction with options is a common hedging technique among professionals.
It is unclear if the market will continue its bull run and find much greater highs. But the derivatives market is proving to be a solid indicator of the market’s direction. Traders are using this to their advantage.
Of course, there is some risk in investing in options, as cryptocurrencies can be very volatile. But knowing fundamentals of options trading and studying the crypto market can reduce the risk. In any case, observe the futures and options market to learn about where professional traders think Bitcoin is going.
What do you think of the Bitcoin derivatives? What are your strategies? Let us know what you think in the comments below.