Traders Hedge Bitcoin Ether With 25 Delta Risk Reversals

As summer approaches, traders are adopting defensive strategies to protect against potential price declines in bitcoin and ether. This cautious approach is evident in the use of options strategies, particularly the 25-delta risk reversal, which involves buying put options and selling call options, or vice versa. This strategy indicates a preference for downside protection, with put options being more expensive than call options for both bitcoin and ether.
According to data from Amberdata, bitcoin's 25-delta risk reversals for June, July, and August tenors are negative, suggesting a preference for put options over calls. Similarly, ether's puts are pricier out to the July end expiry. Traders typically buy put options to hedge their long positions in the spot and futures markets, protecting themselves from potential price declines. This trend is also reflected in the over-the-counter liquidity platform Paradigm, where the top five bitcoin trades for the week include a put spread and a bearish risk reversal. In ether's case, a long position in the $2,450 put was observed alongside a short strangle trade.
Despite the recent sideways trading, some analysts predict that bitcoin could reach new highs by the end of the third quarter. This optimism is based on the strong buying pressure indicated by bitcoin's on-balance volume, which suggests that prices could rise to $130,000-$135,000. However, the current price may be too high for many retail investors, leading to profit-taking by long-term holders and miner selling, which has counteracted the strong uptake for spot ETFs, leaving prices directionless.
The nervousness among traders is also evident from the breakdown of bitcoin below the 50-day simple moving average (SMA) on Friday, which may lead to more chart-driven selling and potentially result in a drop below $100,000. This cautious approach is reflected in the rising open interest in bitcoin options and the positive and rising 25
put-call skew on 30-day contracts, which may imply that market participants are seeking short-term protection through put options.In summary, as summer approaches, traders are shoring up their defenses by using options strategies to hedge against potential price declines in bitcoin and ether. The preference for downside protection is evident in the negative risk reversals for both cryptocurrencies, indicating a cautious approach to the market. Despite the recent sideways trading, some analysts predict that bitcoin could reach new highs by the end of the third quarter, based on the strong buying pressure indicated by its on-balance volume. However, the current price may be too high for many retail investors, leading to profit-taking and miner selling, which has left prices directionless. The breakdown of bitcoin below the 50-day SMA on Friday may lead to more chart-driven selling and potentially result in a drop below $100,000, reflecting the nervousness among traders and their preference for short-term protection through put options.

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