Deribit, which is the world's largest cryptocurrency options exchange in terms of volumes, is preparing to introduce bitcoin (BTC) volatility futures, offering investors in digital assets a more straightforward method to hedge against market volatility than options. According to the exchange's Chief Commercial Officer, Luuk Strijers, futures connected to Deribit's forward-looking bitcoin volatility index (DVOL) will be available under the ticker BTCDVOL at the end of March. DVOL, introduced in 2021, assesses bitcoin's 30-day implied volatility, which is calculated using Deribit's options order book. Implied volatility pertains to the options market's expectation of price turbulence over a specific time.
Volatility trading entails betting on the future stability of an asset rather than predicting future price movements' direction. Traders have been utilizing options strategies like straddle and strangle to express their views on volatility. These strategies, however, are complex and require buying and selling options at various strike prices and a high risk tolerance. With this new offering, traders can bypass the complexities of setting up options strategies and directly buy and sell volatility, similar to trading futures linked to bitcoin's price. The product is expected to attract more institutional and retail investor participation, similar to the Chicago Board Options Exchange's (Cboe) VIX futures, which are derivatives on the Cboe Volatility Index, or VIX. The index represents the market's anticipation of volatility in the S&P 500 for the next 30 days.
According to Strijers, "DVOL futures are an exciting new product that will allow traders to hedge their positions & general risk management, take advantage of market volatility, but also the alpha generation and portfolio diversification... 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 begin by trading one-month expiry futures, with the exchange intending to expand the offering to five expiries later.
These products will be linear futures, priced, margined, and settled in Circle's U.S. dollar-pegged stablecoin, USDC. Linear contracts offer a payoff that is directly linked to the spot price of the underlying asset. Traders must note that DVOL futures, like other derivatives, are leveraged products that can amplify both gains and losses.