The bitcoin market is struggling negatively after the cryptocurrency lost nearly half of its value in two and half months.
BTC USD down -1.50%
The cryptocurrency’s put-call open interest rate expanded to a six-month high of 0.62 on Sunday. The ratio was 0.42 earlier in January.
Patrick Chu, director of institutional sales and trading at over-the-counter tech platform Paradigm, stated the put-call ratio signals demand for puts is currently high.
Chu further stated they have experienced a lot of risk reversal flow, where clients were purchasing puts and selling calls.
Traders implement a bearish risk reversal strategy by purchasing puts with lower strike prices and selling higher-strike calls when forecasting a potential price drop.
A put option gives the purchaser the right but not the requirement to sell the underlying asset at a set price on or before the specific date.
Traditional market participants use the ratio as a contrary indicator signaling a sudden increase in the metric taken to account for the extreme bearish sentiment.