SOL, the native cryptocurrency of the Solana programmable blockchain, has staged a sharp four-week rally

SOL, the native cryptocurrency of the Solana programmable blockchain, has staged a sharp four-week rally, surging 85% since April 7 — more than double the pace of bitcoin (BTC) — and large options traders are positioning for further gains.

The token climbed to around $176 on Monday as crypto and traditional markets embraced a greater degree of risk. Bitcoin, the leading cryptocurrency by market value, has climbed 40%, CoinDesk data show.

The gains are unlikely to reverse in the near future, if block traders — primarily institutions and market participants that execute large trading orders over the counter and outside of the public order book — are correct. They have been snapping up the Deribit-listed June 27 expiry SOL $200 call option in large numbers, a sign they expect the price to rise above that level before the end of the first half.

„Traders also got long the $200 June expiration last week. This was the biggest block trade, trading 50,000x contracts in total for $263,000 in premium. On Deribit, one options contract represents one SOL. As a point of reference, the entire Deribit order book for the same day had around 32,000 contracts in bids and offers at the relevant market price levels, with the market maker later closing out a portion of the trade at a lower price, to reduce their exposure as the bid dropped significantly after the block trade executed.,“ Greg Magadini, the director of derivatives at Amberdata, said in an email on Monday.

A call option gives the purchaser the right, but not the obligation, to buy the underlying asset at a predetermined price at a later date. A call buyer is implicitly bullish on the market. It's like buying a lottery ticket, where the holder has the chance to make significant gains if they win, but will only lose a small amount if the ticket doesn't win.

Magadini added that these call options were snapped up at an annualized implied volatility (IV) of 84%. In other words, traders timed it perfectly, snapping up calls while they were cheap as SOL's IV typically hovers in triple digits.

At the beginning of April, when the trades were executed, the implied volatility for the June $200 strike was at an all-time low, and the market-neutral or delta-hedge part of the trade was also executed at an average price of $139, which is a good price for an institution to enter at, Magadini said.

Such high demand for the $200 call option has left market makers or dealers with a significant net negative gamma exposure at the strike price.

Market makers with a net negative gamma exposure typically buy as prices rise and sell during dips, aiming to rebalance their portfolios toward a delta-neutral, or market-neutral, position. Their hedging activities often amplify market swings.

So it's likely volatility will pick up as SOL potentially crosses the $200 mark.