Return of animal spirits? Bitcoin traders lock $20M in the $200K call option

Animal spirits seem to have returned to the market, spurring a 2021-like interest in Bitcoin (BTC) options that would pay off if the cryptocurrency’s price tripled in the coming months.

On Friday, the Deribit-listed Bitcoin call option at the $200,000 strike price had a notional open interest of over $20 million. The strike price is almost three times Bitcoin’s going market rate of $67,000.

Of the total tally, $14.6 million is locked in the $200,000 call expiring on Dec. 27, while the rest is concentrated in June and September expiry strikes, according to data source Deribit Metrics.

Theoretically, buying the so-called deep out-of-the-money (OTM) call at the $200,000 strike expiring on Dec. 31 is a bet that the cryptocurrency will end the year above that level.

Call options give investors the right to buy the underlying asset at a set price at a later date. A call buyer is implicitly bullish on the market. The notional open interest refers to the U.S. dollar value locked in the active options contracts at a given time. On Deribit, the leading crypto options exchange, one options contract represents one BTC.

The $200,000 strike call was quite popular the last time bitcoin traded above $60,000 in 2021.

The latest interest in the deep OTM strike is consistent with the consensus that BTC’s impending halving-induced supply reduction will further skew the supply-demand imbalance in favor of the bulls, eventually pushing prices into six figures.

The supply-demand balance recently grew to 1:10, thanks to Wall Street’s embrace of the U.S.-based spot bitcoin exchange-traded funds. Bitcoin tapped fresh record highs above $69,000 early this week and last changed hands near $67,000, representing a 59.7% year-to-date gain. The CoinDesk 20 Index, a broader market gauge, has gained 45%.

The rally has boosted the overall activity in the options market. On Deribit, total open interest in bitcoin options has soared to a record $20.4 billion, surpassing the previous peak of $14.36 billion in October 2021. Similarly, ether’s (ETH) options open interest has jumped to a lifetime high of $11.66 billion.

Deep OTM calls are cheaper than those at strikes closer to and below the going market rate. Thus, outright purchases of deep OTM calls are often considered analogous to lottery tickets. The loss is limited to the extent of the premium paid to purchase the option, but, in theory, profit can be huge if the market exceeds the strike price before expiry.

Open interest has hit a new record high. (Deribit) (Deribit)