According to CoinDesk: As the 2024 U.S. elections approach, Bitcoin (BTC) and S&P 500 options markets are displaying a notable divergence in sentiment, potentially signaling a major event on the horizon. Bitcoin options are showing a bias for calls, indicating traders expect positive price movement around election time. In contrast, S&P 500 options are seeing a bias for puts, which suggests market participants are hedging against potential losses and expecting downside volatility.
This divergence challenges the commonly accepted positive correlation between Bitcoin and the S&P 500, which has generally moved in tandem. According to data from Block Scholes, short-term Bitcoin options, particularly those listed on Deribit, exhibit strong demand for calls relative to puts, signaling traders are positioning for upside volatility as the election unfolds on November 8, 2024.
Meanwhile, options tied to the S&P 500 reflect more cautious sentiment, with a preference for puts, hinting at concerns over potential market instability or negative outcomes. Block Scholes CEO Eamonn Gashier highlighted that this divergence could mean one of two things: either the correlation between Bitcoin and equities will break, or one market is currently mispriced.
Interestingly, some crypto traders are taking a different approach, betting on reduced volatility despite the high-stakes election. The implied volatility (IV) for Bitcoin options expiring on November 8 has dropped from 62% to 55%, with traders using strategies like straddles and strangles to profit from minimal price movement. These strategies benefit if Bitcoin's price stays within a tight range, though they carry significant risk if volatility spikes unexpectedly.
The S&P 500 options market, in contrast, shows rising interest in VIX call options, with traders preparing for a potential volatility surge during the tight presidential race. Whether this divergence marks the beginning of a Bitcoin-equity decoupling or a misjudgment in one market remains to be seen, but the uncertainty is setting the stage for a potentially significant market event.
