Deribit, the world’s largest crypto options exchange by volume, will soon launch Bitcoin (BTC) volatility futures, offering digital asset investors a simpler way than options to hedge against market volatility.
Futures tied to Deribit’s Bitcoin forward-looking volatility index (DVOL) will be available to Deribit under the ticker BTCDVOL starting in late March, the exchange’s chief commercial officer Luuk Strijers told CoinDesk on Thursday.
Launched in early 2021, DVOL measures Bitcoin’s 30-day implied volatility, which is calculated using Deribit’s options order book. Implied volatility refers to the options market’s expectation of price turbulence over a period of time.
Volatility trading relies on the future stability of an asset rather than assessing the direction of future price movements. Going long or buying volatility means betting that the asset will see big moves in either direction.
Crypto traders have used options strategies like straddle and strangle to express their views on volatility. However, these strategies are complex and require call and put options at different strike prices and a high risk tolerance.
With the new offering, traders can bypass the complexities associated with setting up options strategies and buy and sell volatility directly, similar to trading futures tied to the price of Bitcoin. The product could attract more participation from institutional and retail investors, similar to the Chicago Board Options Exchange (Cboe) VIX futures – derivatives on the Cboe Volatility Index or VIX. The index represents the market’s expectation for the volatility of the S&P 500 over the next 30 days.
“DVOL Futures is an exciting new product that allows traders to hedge their positions and overall risk management, profiting from market volatility but also from alpha generation and portfolio diversification,” said Strijers. “This product is particularly useful for those who want exposure to BTC volatility but do not want to trade complex options strategies.”
Deribit users will initially only be able to trade futures contracts with one-month expirations, with the exchange planning to later expand the offering to five expirations.
The products are linear futures priced, margined and settled in circles on the USDC stablecoin pegged to the US dollar. Linear contracts offer a payout that is linear to the spot price of the underlying asset.
Traders should note that DVOL futures, like other derivatives, are leveraged products that can amplify both gains and losses.
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