Over the past three weeks, $150,000 worth of Bitcoin (BTC)
$50K call options for June and December 2021 strikes have been traded.
LedgerX derivatives exchange has been intermediating these ultra bullish
trades, but what could be the rationale behind them?

There are
some good reasons for buying options with such small odds, but paying
$1,000 for the privilege of purchasing Bitcoin 440% above the current
price in 18 months seems unreasonable. 

Even considering an annual
100% volatility, which is quite high even for Bitcoin’s standards, the
probability that the price will reach $50,000 is less than 8%.


The call option seller takes the risk


The
seller of this call option has unlimited downside if price somehow
manages to surpass the $51,000 level and for this commitment the seller
is paid the $1,000 upfront.

For comparison, the December 2021 call
option with a $25,000 strike has been trading at $1,750. Such a buyer
will profit $13,250 if Bitcoin price reaches $40,000, which is a healthy
650% return. 

On the other hand, the $50,000 strike buyer would gain nothing from this massive bull run to $40,000.


Potential rationale for such bullish trade


Recently,
crypto media and crypto-Twitter have been intensely focused on options
and futures instruments but in reality, it makes no sense for retail
traders to buy pricey options, even for the most bullish ones. 

There’s
really no way to know the rationale that drives these immensely
optimistic investors, although this could be a bull call spread.

In
this scenario, the investor would be buying the more expensive $25,000
call option, while selling the $50,000 one. This makes more sense as it
reduces the current expenditure to $750 from $1,750 along with the
benefit of profiting massively from a potential bull run.

Profit/Loss for Bull Call Spread


Profit/Loss for Bull Call Spread. Source: Optioncreator.com

The
above chart depicts the return for such a bull call spread trade.
Although it is still very optimistic, this strategy provides positive
returns for levels above $25,750.


A previous $50K bet in 2018 did not pay off


Back
in December 2017, Blocktower Capital paid $1 million for $50K call
options maturing in twelve months. In late 2018, Blocktower CIO Ari Paul
explained that it was a volatility trade carried out as they simultaneously sold BTC and other assets. 

There’s no way to estimate the trade’s profit or loss, but the $1 million premium definitively has been lost.

The views and opinions expressed here are solely those of the author
and do not necessarily reflect the views of Cointelegraph. Every
investment and trading move involves risk. You should conduct your own
research when making a decision.