Bitcoin options traders are starting to play defense as leveraged futures traders maintain their bullish stance amid ongoing spot selling pressure.
According to a recent report from Glassnode on October 19, the 25-delta options skew for Bitcoin rose from 5.2% to 8.6% in the previous week. This indicates a higher premium being placed on downside protection compared to bullish options.
At the same time, funding payments by perpetual futures longs surged by 49.4% to $1.6 million, showing continued interest in leveraged bullish positions despite the lackluster buying activity in the underlying market.
These contrasting positions have emerged as Bitcoin struggles to recover from the selloff in October, with the cryptocurrency trading around $81,300 at the moment, down more than 2% from the previous week.
The divergence in trading strategies leaves Bitcoin vulnerable to increased volatility if spot selling continues and leveraged traders are compelled to reduce their positions, especially as investors brace for the upcoming Federal Reserve interest-rate decision.
Glassnode’s data on Bitcoin options suggests that investors are becoming more cautious, valuing protection against further losses even as the recent price movements have been relatively calm. The implied-versus-realized volatility spread has turned positive, indicating a willingness to pay a premium for exposure to potential price swings in the future.
Additionally, the 25-delta skew has increased, making bearish put options more expensive relative to bullish calls. This shift indicates a growing emphasis on protecting existing positions against declines, particularly after Bitcoin’s struggle to sustain a recovery above its September breakout levels.
Despite the defensive positioning, the market has not reached extreme levels of demand for downside protection historically. Investors are still active in the options market, with open interest rising to $38.6 billion from $37.4 billion in the previous week.
The increased focus on protection against adverse price movements has coincided with deteriorating conditions in spot trading. Glassnode’s spot cumulative volume delta widened, showing a growing imbalance between aggressive buying and selling, while trading volume saw a modest uptick.
In contrast to weak spot trading, there is renewed interest in leveraged bullish positions in Bitcoin’s perpetual futures market. Long-side funding payments have increased, returning to normal levels after the earlier selloff.
Although futures selling pressure has eased somewhat, spot sellers remain active, and options investors are willing to pay a higher premium for downside protection. This uneven market structure poses challenges for Bitcoin’s price stability.
Overall, the market remains sensitive to various factors, including on-chain positioning and the upcoming Federal Reserve policy meeting. Investors are closely monitoring Bitcoin’s ability to hold above $80,000 and the potential impact of external catalysts on the cryptocurrency’s price trajectory.
