Deribit's New Bitcoin, Ether Options Tied to U.S. Elections Get Thumbs Up From Crypto Traders

Traders said these options will help define risk and protect capital from expected volatility in the lead-up to and following the binary event.

Crypto options exchange Deribit will introduce new options on Tuesday that will allow traders to bet on the outcome of the pivotal U.S. presidential elections on Nov. 4, in the context of their bitcoin (BTC) and ether (ETH) positions.

The exchange will offer options on both BTC and ETH that will expire on Nov. 8, or three days after the election results are due on Nov. 5. On Deribit, one option contract represents one BTC or ETH.

Traders said these options will help define risk and protect capital from expected volatility in the lead-up to and following the binary event.

"The U.S. election is a focal point for risk assets [including crypto] and will have a binary effect on fiscal policy and financial stability. Options are an important tool for hedging this uncertainty, so it's natural for Deribit to list this tenor," Jeff Anderson, a senior trader at STS Digital, told CoinDesk.

The impending election may be most important for cryptocurrencies, as Republican candidate Donald Trump has recently embraced digital assets, standing apart from his rival incumbent, Joe Biden. Though Trump has not yet set out detailed proposals for crypto regulation, his recent outreach to bitcoin miners and his promised appearance at the upcoming Nashville conference has won him the industry's support, establishing BTC and the wider market as a bet on his presidency.

As such, BTC and ETH could see increased price volatility in the lead-up to and after the elections, necessitating increased investor focus on using derivatives like options to hedge their portfolios. Options offer insurance against bullish or bearish price moves in the underlying asset. A call option protects against upside volatility while a put hedges against price slides.

"If a trader believed an asset may have an explosive move in either direction, as a result of a binary headline event, they could buy a straddle, which is buying the same strike price put and call, with an expiration date after the headline event," global derivatives giant CME's explainer titled "using equity options in an election year" says.

"We often see these types of trades placed before a major macroeconomic release or a company earnings report. If the underlying asset moves further from the strike price than the cost of the options, the trade would be profitable," the explainer adds.

Deribit's election expiry options will go live on July 18 at 8:00 UTC.

Traditional market traders use options to manage their exposure when facing binary events like U.S. elections or corporate earnings whose outcome is uncertain.