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HomeNewsBusinessAhead of US Nonfarm Payrolls, Bitcoin and Ether Options Market experiences mixed...

Ahead of US Nonfarm Payrolls, Bitcoin and Ether Options Market experiences mixed Flow 

Prior to the important U.S. nonfarm payrolls (NFP) report, the bitcoin (BTC) and ether (ETH) options markets experienced mixed flows, with a focus on developing trading plans that would benefit from a potential post-data volatility explosion.

The buyer of a put option has the option, but not the duty, to sell the underlying asset at a defined price on or before a given date. Implicitly negative on the market is a put buyer. The buyer of a call option, who has confidence in the market, has the choice to buy.

“Prior to the data release, we observed two-way movements, with some clients securing downside protection by purchasing short-dated put spreads on BTC and ETH. Additionally, there has been interest in buying short-dated call spreads at the same time “Dick Lo, the CEO and founder of the quant-driven trading firm TDX Strategies, stated.

When an equal number of puts are simultaneously purchased and sold at various strikes, a bear put spread is produced. In contrast to the outright long put strategy, which has an unlimited profit potential, it is a low-cost, bearish method. The reverse is true for call spreads.

According to Reuters, the report, which is due at 13:00 UTC, is expected to indicate that the world’s largest economy added 200,000 jobs in December after adding 263,000 in November. The average hourly wage growth is anticipated to have slowed to 5% from 5.1% year over year, while the unemployment rate is predicted to remain constant at 3.7%.

Fears that a positive payrolls figure would push the already hawkish Federal Reserve (Fed) to maintain interest rates led to the need to add downside protection.

Since March 2022, the Fed has increased rates by 425 basis points in the hopes that the drastic tightening will weigh on the labour market and aid in the management of inflation. Payrolls have been averaging well over 200,000 since September, yet the labour market has been impressively robust.

In order to prevent a negative reaction in risk assets, including cryptocurrency, the headline NFP result must print far below projections.

“To indicate a sufficient relaxation of labour market circumstances and to support a risk-on rally, we would need to see a number below 200k. Price action is anticipated to be subdued to somewhat negative for a number that meets expectations “Telling CoinDesk, Lo. For traders who purchased call spreads in the hopes that the data would undermine the case for further Fed tightening, a risk-on surge would be advantageous.

On Deribit, the biggest crypto options trading platform by open interest and volumes, some traders have been buying bullish volatility trades like long strangles. Buying a strangle entails purchasing bullish calls and bearish options with the same expiration at strikes that are equally spaced from the price of the underlying asset today. As long as the underlying asset makes a significant move in either direction, the approach is profitable.

As a result, traders frequently purchase strangles in advance of binary events that increase volatility, such as the release of the NFP, the Fed meeting, and election results. Investors seem to be counting on a large price increase following the NFP, according to volatility trader Griffin Ardern of the crypto asset management company Blofin.

Trading options is a dangerous endeavour. Strangles appear straightforward, but there are risks involved. If the market remains unchanged, a strangle buyer may forfeit the full sum paid as compensation to the call and put seller.

News Summary:

  • Ahead of US Nonfarm Payrolls, Bitcoin and Ether Options Market experiences mixed Flow 
  • Check all news and articles from the latest Business news updates.
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