By CCN: Now that the bitcoin price has momentum on its side, the bulls are placing bullish bets again. The most aggressive trades are seemingly happening in the crypto derivatives market where the risk/reward profile differs vs. the spot market. Now that the bitcoin price has generated returns of approximately 130% year-to-date, derivatives traders are willing to put it on the line once again.
One bullish trade that has resurfaced in the crypto call options market is a bet that the bitcoin price will surpass $50,000 by this time next year, which would reflect an increase of roughly 150% versus BTC’s 2017 peak of nearly $20,000.
A mysterious trader on May 23 purchased $4,500 for more than two dozen bitcoin options with a bullish strike price of $50,000 by June of next year, according to a report in the Wall Street Journal citing CFTC regulated LedgerX. It means this trader is willing to bet that BTC will be above $50K by June 2020.
While the wager amount may seem small compared to the $25 billion in BTC trading volume in the last 24-hour period, it’s significant because it’s reportedly the first time that LedgerX has witnessed call options activity in the BTC $50,000 range in more than six months. Last month, LedgerX observed bitcoin options trades for BTC $25,000, according to LedgerX Co-Founder and COO Juthica Chou, who is also a Goldman Sachs alum, cited in the WSJ.
Options are designed for sophisticated traders. In this case, the call option gives the trader the right but not the obligation to purchase BTC at the strike price by the expiration date of June 2020. If the bitcoin price rises beyond that level, the trader will earn a nice profit. If the bitcoin price falls, they only risk losing what they doled out for the options contract. LedgerX counts among its institutional customers crypto funds, miners, bitcoin companies, hedge funds, trading firms, according to Chou in a recent Off the Chain interview with Anthony Pompliano.
While the bitcoin $50,000 call option has resurfaced, it’s not the first time that traders have made such a bet. During the crypto bull run of 2017, BlockTower Capital reportedly also used LedgerX to bet nearly $1 million that the BTC price would reach $50K by year-end 2018.
One thing to understand with options: a deep out of the money call is not a bet that something *will* happen, it's a bet that something *might* happen. Risk a little to win a lot.
— Ari Paul ⛓️ (@AriDavidPaul) December 21, 2017
Clearly, the crypto winter prevented that from happening at the time.
BlockTower Capital CIO Ari Paul told the WSJ:
“I certainly would caution nonprofessionals against trading options.”
But now that bitcoin has the wind at its sails once again with several catalysts fueling the momentum, the call option trade could reach a much more lucrative conclusion this time around.