Skew, a company that provides real-time data analytics for Bitcoin and Ether derivatives, recently posted on their Twitter account how their data suggested the options market is only pricing in a 5% probability of Bitcoin pushing past $20,000 in March next year.
The options market is only pricing in a 5% probability of BTC > $20k in March 2020.
— skew (@skew_markets) October 11, 2019
When you buy an option, you pay a percentage of the underlying asset’s value for the number of units of that asset you want to buy. This amount is the premium for the option and it varies based on how likely the market thinks the asset will rise or fall to a certain value in the specified time frame. The main drivers of option pricing are asset value, time value, which decays as the option’s expiry date nears, and market volatility.
Just before this chart was published, Skew had also tweeted about how the steepening of Bitcoin’s term structure is getting quite visible, implying that the market is not expecting additional volatility in the short-term. This means the options market is seeing stable risk levels for the near future, which could explain the low premiums on option calls for $20,000 by March.
From the probability chart, it is clear that premiums are higher with regards to options putting in the money, echoing the sentiments of Bitcoin option traders who believe the price is likely to fall. With the options pricing indicating just over a 20% probability of Bitcoin pushing $10,000 in November, the chart also paints a picture detailing a market more willing to buy at a lower price than one willing to sell at a higher price.