As the August U.S. nonfarm payrolls report (NFP) nears, bitcoin BTC$109,418.13 traders on the CME are snapping up inexpensive bearish bets by purchasing far out-of-the-money puts, hedging against the possibility of an unexpectedly strong jobs print that could trigger a sell-off in risk assets.
The NFP, due Friday, is expected to show that the economy added 110,000 jobs, up from 73,000 in July, according to consensus estimates from FactSet. The jobless rate is expected to have held steady at 4.2%. Meanwhile, hourly earnings are projected to rise 0.3%, the same as in July.
The labor market outlook has already darkened, with JOLTS data revealing that job openings declined more than expected to 7.2 million in July, while a low quit rate points to moderating wage pressures. Early Thursday, ADP’s private sector employment report revealed that employers added just 54,000 jobs in August, a steep decline from the 104,000 positions recorded in July.
These figures strengthen the case for Fed rate cuts, a bullish development for asset prices. Yet, traders on the Chicago Mercantile Exchange (CME) are considering the possibility of an upbeat NFP report, which could dent Fed rate cut bets and send BTC lower.
“We’ve seen robust appetite for leveraged downside exposure through 5-delta, OTM puts, with consistent demand across the curve. This positioning signals investors are bracing for the possibility of an upside surprise in August’s NFP report that could re-anchor the Fed’s focus on inflation and reduce the odds of rate cuts this year,” Gabe Selby, head of research at CF Benchmarks, told CoinDesk.
Put options give the buyer the right, but not the obligation, to sell the underlying asset at a predetermined price by a specified future date. Traders buy puts to hedge against or to profit from a drop in the asset’s price.
The 5-delta put options are deep out-of-the-money puts with strike prices well below the current market price, making them relatively inexpensive compared to options closer to the spot price. Traders often buy these cheap “lottery ticket” puts as speculative bets on sharp downward moves or as low-cost hedges against extreme bearish scenarios.
Downside fear
Selby observed that, unlike previous pre-NFP periods when put buying was mainly focused on long-term expiries, this time the activity is spread across both short-term and long-term expiries.
“The breadth of put buying reflects a market recalibrating around asymmetric risks, as much of this activity is centred around far OTM puts, indicating traders still see a materially strong jobs print as an outside chance. That lines up with our view that even an in-line or slightly stronger-than-expected payrolls number would not be sufficient to tilt the Fed’s balance of risks back toward its price stability mandate,” Selby told CoinDesk.
Options listed on Deribit, the world’s largest crypto options exchange by volume and open interest, also exhibit downside fears, with short and near-dated puts trading at a notable premium to calls, according to risk reversals tracked by Amberdata.
As of writing, BTC changed hands at $109,950, down 2% on a 24-hour basis, according to CoinDesk data. The recovery from weekend lows ran out of steam above $112,000 on Wednesday, reinforcing the Aug. 3 low as key resistance.