Bitcoin
Deribit’s Bitcoin and Ether Options for US Election Expiry Receive Approval from Crypto Traders
Leading cryptocurrency options exchange Deribit announced new options on Tuesday that would allow traders to effectively manage their bitcoins. (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-expiration options tied to market leaders bitcoin and ether has received positive feedback from traders.
“The US election is 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 this uncertainty, so it is natural for Deribit to list this term,” Jeff Anderson, a senior trader at STS Digital, told CoinDesk.
The upcoming election could be even 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 the upcoming Nashville conference have earned him the industry’s support, establishing BTC and the broader market as a play for his presidency.
As such, BTC and ETH may see increased price volatility before and after the election, necessitating a greater investor focus on using derivatives like options to hedge their portfolios. Options provide 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 declines.
Deribit’s election expiry options will go live on July 18 at 8:00 UTC and will expire on November 8, or three days after the election results, which are expected to be 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 the election and after it, with a three-day buffer after the result. It’s a great way to gain leverage and hedge your exposure simultaneously,” Laurent Kssis, crypto ETF specialist at CEC Capital, told CoinDesk.
Traditional market traders use options to manage their exposure when facing binary events, such as US elections or corporate earnings, whose outcome is uncertain.
“If a trader believed that an asset could have an explosive move in either direction as a result of a binary event, they could buy a straddle, which is buying the same strike price of a put and a call, with an expiration date after the main event,” the global derivatives giant said. CME Explainer titled “Using Stock Options in an Election Year,” it says.
“We often see these types of trades placed ahead of a major macroeconomic release or a company’s earnings report. If the underlying asset moves further away from the strike price than the cost of the options, the trade would be profitable,” the explainer adds.