As anticipation builds for the upcoming U.S. nonfarm payrolls (NFP) report, traders on the Chicago Mercantile Exchange (CME) have been actively purchasing far out-of-the-money puts on bitcoin, signaling a bearish sentiment amidst concerns about a surprisingly strong jobs report that could negatively impact risk assets. The NFP report, scheduled for release on Friday, is projected to show an addition of 110,000 jobs, a significant increase from July’s figure of 73,000. The unemployment rate is expected to remain steady at 4.2%, while hourly earnings are anticipated to rise by 0.3%, mirroring July’s increase.
Recent data from the Job Openings and Labor Turnover Survey (JOLTS) has painted a less optimistic picture of the job market, revealing a decline in job openings to 7.2 million in July—exceeding predictions. Moreover, a low quit rate could suggest diminishing wage pressures. Compounding these concerns, the recent ADP payroll report indicated a mere addition of 54,000 jobs in August, down sharply from July’s 104,000.
These employment figures bolster expectations for potential interest rate cuts by the Federal Reserve, a prospect typically viewed favorably by asset prices. However, traders are also considering the possibility of an unexpectedly strong NFP report that could dampen the optimism surrounding rate cuts and lead to a decline in bitcoin’s value.
Gabe Selby, head of research at CF Benchmarks, highlighted a notable increase in demand for leveraged downside exposure through 5-delta, out-of-the-money puts. He noted that this trend indicates investors are preparing for the potential of an upside surprise in the upcoming NFP report, which might prompt the Fed to shift its focus back to inflation concerns and lessen the likelihood of rate cuts this year.
Put options provide buyers the right, but not the obligation, to sell an asset at a predetermined price before a specified date, allowing traders to hedge against or profit from declines in asset prices. The 5-delta put options, characterized as deep out-of-the-money, come at a lower cost compared to those closer to the market price. Such options are often viewed as speculative “lottery ticket” bets against sharp price drops, or as economical hedges against adverse market scenarios.
Selby pointed out a distinct shift in market behavior compared to previous pre-NFP periods, where put buying used to predominantly focus on long-term expirations. In this instance, activity is more distributed across both short-term and long-term expirations. “This breadth of put buying indicates a market recalibrating around asymmetric risks,” he stated, suggesting that traders are still contemplating a significantly strong jobs report as a possible outcome. Selby argued that even a result aligned with or slightly better than expectations may not be sufficient to alter the Fed’s focus on price stability.
Meanwhile, options trading on Deribit, recognized as the leading crypto options exchange globally, also reflects cautious sentiment, with short and near-dated puts commanding a premium over calls.
As of the latest data, bitcoin is trading at approximately $109,950, representing a 2% decrease over a 24-hour period. After a recovery from weekend lows, the cryptocurrency’s momentum encountered resistance above $112,000 on Wednesday, solidifying the importance of the August 3 lows as a critical level of resistance.
