Bitcoin options show post-US election bullish bets and heightened volatility, analysts say

As the U.S. presidential election approaches, traders are bracing for increased bitcoin price fluctuations — and the options market reflects heightened expectations of volatility.

Implied volatility — a gauge of expected future price fluctuations — has increased as derivatives traders are likely speculating on potential price upswings or hedging out possible downside risks for options expiring after the U.S. election on Nov. 5.

According to one analyst, much of this activity is focused on call options expiring at the end of the quarter, particularly on Dec. 27. Presto Research analyst Rick Maeda noted a clear uptick in bullish bets on longer-term bitcoin options set to expire at the end of the year. "Trump’s implied election odds from Polymarket hit their highest levels since early August this week," Maeda told The Block.

"Long out-of-the-money (OTM) call flows for the next two quarterly expiries are showing a notable increase, with 64.53% of flows targeting the December 27, 2024, expiry and 79.79% for the March 28, 2024, expiry. This signals a strong bullish outlook ahead," he added.

However, the analyst noted that the futures market tells a more cautious story. "Futures traders seem to be fairly cautious heading into the U.S. election due to uncertainties surrounding both the election and the Federal Open Market Committee (FOMC) two days later," Maeda said.

The analyst added that open interest in bitcoin perpetual futures has remained relatively stable since the second quarter. Neither the OI-weighted nor the volume-weighted funding rates are skewed toward extreme positions. "The 10-day average annualized OI-weighted and volume-weighted funding rates are both currently in the low 7% range, which is a stark contrast to the 50% plus level from early March this year when positioning was extremely long," Maeda explained.

Volatility is expected to rise significantly around the time of the U.S. election on November 5. Image: Vertex.

Election premium driving up option prices

Vertex co-founder Darius Tabai emphasized the growing cost of bitcoin options set to expire after the U.S. election, stating that there is a premium on options expiring around key dates like Nov. 8 and Dec. 27, as the market expects significant price swings.

"The spike in forward volatility demonstrates that the market is pricing a premium for the election and is expecting some event risk around the results," Tabai said. He added that this shows that the market has a clear expectation of a large impact for crypto from the U.S. elections. "The spike in implied volatility is reflective of traders wanting to either speculate on this or hedge out some risk," he added.

Presto Research’s analysis also points to an election premium in bitcoin's implied volatility. "We estimate an 8% premium in IV ahead of the November 2024 election, reflecting the market’s expectation of heightened volatility during this period," they said. The Presto Research report added that this bitcoin options "election premium" has shown a loose correlation with Trump’s odds in prediction markets.