Bitcoin drops below $ 54,000, stocks sell off after a new variant of Covid emerges

Deribit exchange is an absolute leader in the Bitcoin (BTC) options market, and on Nov. 24, the 25% delta deviation indicator signaled that sentiment was becoming “generally more pessimistic” among professional traders.

We’ve seen the 25-delta bond rate move from around% to near 10-15% since early November leading up to the maturity date, implying an overall bearish sentiment.
Discounted premiums are becoming more and more expensive.
In the short term, this process has a maximum price of $ 58,000. https://t.co/jhpT1riX3g

– Deribit (@DeribitExchange) November 24, 2021

Bitcoin price appears to have been following a descending channel since November 9th, so the “bearish” signal could reflect the 22% decline from the all-time high of $ 69,000.

The 25% delta deviation compares call (buy) and put (sell) track music options. It turns positive if the put premium is higher than similar risky call options, indicating a bearish sentiment.

The opposite happens when market makers are sloping up and this causes the 25% delta deviation indicator to go into negative territory.

Readings between 8% negative and 8% positive are generally considered neutral, so Deribit’s analysis is correct when it says that there was a significant shift to “fear” on November 23, but that movement on November 26 at 8 % which no longer supports traders’ bearish stance.

What happened on the futures market?

To confirm whether this move is specific to this instrument, one should also analyze the futures market.

The futures premium – also known as the “base rate” – measures the difference between a longer-term futures contract and the current spot market level. In healthy markets, an annual premium of 5 to 15% is expected, a situation known as contango.

This price gap is due to sellers charging more money in order to withhold payments longer, and a red alert appears when the indicator fades or turns negative, known as “regression”.

In contrast to delta options, which are 25% off, which have turned into “fear,” the primary risk metric for futures between November 16 and May 25 was relatively flat at 11% and nowhere near bearish.

Traders mainly use call options

Why professional traders and market makers using the Bitcoin options market charge such high fees for put options can only be speculated. They may fear an impending risk after the US Senate Committee obtained information on the release of stablecoins on November 23.

On the same Tuesday, the Board of Governors of the Federal Reserve System announced work on a series of “policy sprints” aimed at providing regulatory clarity in the cryptocurrency industry. Managing authorities are likely to align compliance and enforcement standards with applicable laws and regulations.

However, that does not explain why these uncertainties are not reflected in the Bitcoin futures market. So the question arises as to whether the 25% deviation indicator should be ignored in this case.

The Bitcoin options expiration on December 31st holds 60% of the current open interest totaling $ 13.4 billion. As the graph above shows, there is virtually no profit on put options (put options) above $ 60,000.

Given that the call (call) options are 145% higher than the December 31st protection, one shouldn’t worry too much about how the market makers rate these instruments. Therefore, despite Deribit’s declining warning, a delta deviation of 25% shouldn’t be of much concern at the moment.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.