Alexander S. Blume, co‑founder and CEO of Two Prime, an SEC‑registered investment advisor, highlighted the popular strategy known as call overwriting. Under this approach, investors sell call options on Bitcoin they already hold, sacrificing some upside to generate consistent income from the option premiums.
“I believe that, although overall volatility has moderated, the substantial rise in derivatives market positioning enables large price moves to occur with some regularity. Currently, call overwriting is a densely populated trade, and upward moves — such as the one seen over the past month — can trigger short squeezes that intensify the volatility,” Blume remarked.
A more resilient market?
The positive sign is that the market is handling these shocks more effectively hides more effectively than before.
On September 21, the day of Bitcoin’s latest three‑sigma jump, Paradigm processed a record $6.7 billion in options trades.
“This time we have not observed any desk incurring a significant loss,” Quatravaux stated.
“Participants are far more sophisticated than in previous years, risk management has markedly improved, and institutional capital has increased, meaning a difficult month remains difficult,” he noted.
Do not expect these volatile swings to cease.
“They will persist. Ten years of data indicate that volatility has not disappeared as the market has matured, since macro‑economic shocks remain ongoing,” Quatravaux added.