Here’s how options traders are positioning for the post-FOMC meeting scenario.
- BTC flashed bearish signals ahead FOMC meeting. Despite short-term caution, analysts remained bullish in the mid-term.
Bitcoin [BTC] led the crypto market with notable de-risking ahead of the Fed rate decision as analysts prepared for a possible ‘hawkish cut.’
The cryptocurrency declined from an all-time high of $108K to $103K just hours before the FOMC meeting. Markets had priced in another 25bps interest rate cut.
But analysts expected a ‘hawkish tone’ due to the sticky U.S. inflation, which could affect the Fed rate path into 2025.
A similar outlook was shared by crypto trading firm QCP Capital. The firm noted,
“The tone may be slightly hawkish, with inflation stabilizing above 2% and a strong labor market keeping the Fed cautious.”
What’s next for BTC?
The firm added that the BTC chart flashed bearish signs, including an evening star, a signal of potential trend reversal.
“The technical outlook for BTC also appears cautious, with BTC printing an evening star on the daily timeframe and exhibiting bearish divergences.”
Source: BTC/USDT, TradingView
For the unfamiliar, the evening star is a bearish reversal candlestick pattern involving three candlesticks; a large bullish one, followed by a smaller and finally a large bearish candle.
This suggested that a BTC crash could be likely in the short term.
Interestingly, options traders have been cautious since last week. They preferred hedging for potential price declines through put options than chasing price rallies as they did in prior weeks.
In fact, the recent BTC new highs of $107K and $108K were met by short-term bearish sentiment from options traders.
At press time, Deribit’s 25-delta risk reversal (25RR) was negative for options expiring on Friday, 20th December, underscoring bearish sentiment and the richness of put options.
Source: Deribit
Put options expiring on the 3rd of January 2025 were also trading at a slight premium to calls (bullish bets). The rest of Q1 2025 (up to March) expiries were trading between 1-3 volatility points.
This was completely different from a few weeks ago, when the volatility points could surge to 4-5 as options traders chased the rallies. Whether the trend will change after the FOMC meeting remains to be seen.
That said, QCP Capital maintained a long-term bullish outlook into 2025 despite the near-term caution in the options market.
Another analyst, Stockmoney Lizards, echoed the bullish long-term outlook, stating that there was room for extra growth for BTC based on the monthly RSI reading.
Source: X
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