Significant transactions have been recorded this week related to XRP call options set at a $4 level. According to data provided by Amberdata, one million contracts of the $4 strike price call option, due to expire on December 26, changed hands via block trading on Monday. These contracts, each with a size of 1,000 XRP, were reportedly written by a large-scale user on the Deribit exchange.
Noteworthy Volatility in the Options Market
This transaction was observed despite the recent decline in XRP’s price. Block trades in the options market are typically defined as large and specially negotiated transactions. At the conclusion of these transactions, the agreements are listed through the exchange. The $4 level call option is perceived as anticipating a rise in XRP’s price beyond this level by the specified date.
However, experts suggest that this market intensity might not stem from an expectation of a price increase. The substantial transaction is perceived as a covered call strategy against existing XRP positions. A covered call permits investors to restrict price movement expectations by backing their holdings.
Comprehensive Covered Call Strategy
This strategy involves the investor writing a call option at a price markedly above the current level based on the owned XRP quantity. Hence, the investor seeks to earn additional income from the option premium, while accepting the potential limitation of profit in case of price increase.
Market experts indicate that the recent block trade probably forms part of a covered call strategy. Lin Chen, Deribit’s Head of Business Development in Asia, remarked as follows:
“I surmise a major investor is executing a covered call strategy.”
This strategy is notably popular among BTC investors. It has reportedly resulted in a steady decline in implied volatility over the last two years, with the principal motivation for investors being the desire to earn additional income on existing assets.
Current XRP Price Status
XRP’s price dropped to $2.94 on Monday, part of a broader downturn in the general cryptocurrency market. Subsequently, XRP’s price stabilized slightly above $3. CoinDesk data indicated that the prices soared above $2.6 last month, reaching a record high.
Experts opine that the block transaction was executed not in anticipation of a market surge but more to maximize the yield from held assets. Additionally, a cautious stance is emphasized in market dealings, while market makers continue to bolster market liquidity and maintain neutral price setting through such transactions.
