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Deribit US Election Expiration Bitcoin, Ether Options Get Thumbs Up From Crypto Traders
Major crypto options exchange Deribit announced new options on Tuesday that would allow traders to effectively manage their bitcoin (BTC) and ether (ETH) positions in the context of the outcome of the crucial US presidential election on November 4.
The introduction of so-called election expiry options tied to market leaders Bitcoin and Ether has garnered positive feedback from traders.
“The US elections are a focal point for risk assets [including crypto] and will have a binary effect on fiscal policy and financial stability. Options are an important tool to hedge against this uncertainty, so it’s natural for Deribit to list this tenor,” Jeff Anderson, a senior trader at STS Digital, told CoinDesk.
The upcoming election could be more important for cryptocurrencies, as Republican candidate Donald Trump has recently embraced digital assets, setting himself apart from his incumbent rival, Joe Biden. While Trump has yet to lay out detailed proposals for cryptocurrency regulation, his recent outreach to bitcoin miners and his promised appearance at an upcoming conference in Nashville have earned him industry support, establishing BTC and the broader market as a bet on his presidency.
Therefore, BTC and ETH could see increased price volatility in the run-up to and after the election, necessitating a greater focus by investors on using derivatives such as options to hedge their portfolios. Options offer insurance against upward or downward price movements in the underlying asset. A call option protects against upward volatility while a put option protects against price drops.
Deribit’s election expiry options will go live on July 18 at 8:00 UTC and expire on November 8, which is three days after the election results are released on November 5. On Deribit, one option contract represents one BTC or ETH.
“These options are a smart move by Deribit; they will allow traders to position themselves ahead of, during and after the election with a three-day buffer after the result. It’s a great way to get leverage and hedge your exposure at the same time,” Laurent Kssis, crypto ETF specialist at CEC Capital, told CoinDesk.
Traditional market traders use options to manage their exposure when faced with binary events, such as U.S. elections or corporate earnings, where the outcome is uncertain.
“If a trader believes that an asset could have an explosive move in either direction, as a result of a binary major event, they might buy a straddle, that is, buy the same strike price on both the put and call, with an expiration date after the major event,” the global derivatives giant said. CME Explained titled “Using Stock Options in an Election Year.”
“We often see these types of trades placed before a major macroeconomic release or a company’s earnings report. If the underlying asset moves away from the strike price by more than the cost of the options, the trade would be profitable,” the explainer adds.