The crypto options exchange, Deribit, with the most substantial trading volumes, is preparing to release bitcoin (BTC) volatility futures. This innovative addition is predicted to offer digital asset investors a more uncomplicated approach to protect their assets against market instability in contrast to the present options.
Hedge Against Bitcoin Volatility with Deribit’s DVOL-Based Futures
Futures linked to Deribit’s forward-looking bitcoin volatility index (DVOL) will be available to Deribit through the BTCDVOL ticker by the end of March, as disclosed by Deribit’s Chief Commercial Officer, Luuk Strijers.
Deribit introduced DVOL in the beginning of 2021, which calculates bitcoin’s 30-day implied volatility using Deribit’s options order book. Implied volatility is the options market’s projection of the anticipated price fluctuations for a particular period.
Trading volatility entails speculating on an asset’s future stability instead of its price direction. To go long or buy volatility indicates predicting significant movements in either direction for the asset.
Deribit Revolutionizes Volatility Trading with Upcoming Futures Offering
Traders in the cryptocurrency market have adopted options strategies like straddle and strangle to express their stance on volatility. However, executing these methods requires complex procedures and involves purchasing and selling options at varying strike prices, which requires a significant appetite for risk.
By launching the upcoming volatility futures, traders can bypass the intricacies that come with implementing options strategies and proceed to trade volatility directly, similar to trading futures linked to bitcoin’s price.
This product possesses the capacity to attract participation from institutional and retail investors, much like the VIX futures on the Chicago Board Options Exchange (Cboe), which are derivatives of the Cboe Volatility Index or VIX. The VIX Index reflects the anticipated volatility in the S&P 500 for the next 30 days, according to the market.
Unlocking Opportunities in BTC Volatility Trading with DVOL Futures
According to Strijers, “DVOL futures are a thrilling and novel product that will enable traders to hedge their positions and manage their general risk while benefiting from market volatility, alpha generation, and portfolio diversification. This product is especially valuable for those who desire BTC volatility exposure but are disinclined to engage in intricate options strategies.”
Initially, Deribit users will only have access to one-month expiry futures, but the exchange intends to increase the number of expiries to five in the future. The products offered will be linear futures, priced, margined, and settled in Circle’s U.S. dollar-pegged stablecoin USDC. It is worth noting that linear contracts offer a payout that is directly proportional to the spot price of the underlying asset.
Managing Risks in DVOL Futures Trading on Deribit
It is important to note that while DVOL futures offer a simpler and more accessible method for traders to hedge against market volatility, they are still a leveraged product. This means that they possess the ability to magnify both profits and losses, and traders should exercise caution before investing in these markets. It is crucial for traders to have a thorough understanding of the product’s mechanics and the risks involved in DVOL futures trading.
It’s vital to implement proper risk management strategies is vital to mitigate exposure and prevent unnecessary losses. Those who are interested in trading DVOL futures on Deribit should carefully assess their risk tolerance and investment objectives before engaging in this market.