In anticipation of a resolution to Ripple’s legal dispute with the U.S. SEC, Traders are picking up bullish wagers.
XRP, a cryptocurrency that focuses on payments, has outperformed bigger cryptocurrencies this month with a significant rally. In the options market, some traders are grabbing optimistic wagers in the hopes of sustaining gains through the year’s end.
According to data from CoinDesk, the fifth-ranked cryptocurrency by market value was trading at $0.426 at the time of publication, up 28% for the month. Bitcoin and ether, the two market leaders, had declines of 4.5% and 17%, respectively.
The ongoing legal dispute with the U.S. Securities and Exchange Commission has sparked interest in purchasing XRP year-end upside call options, according to Dick Lo, the founder and CEO of Hong Kong-based quant trading company and liquidity provider TDX Strategies.
A call is a type of derivative contract that gives the buyer the option but not the obligation to purchase the underlying asset, in this case, XRP, at a fixed price on or before a given expiration date. As a result, bullish speculators favor calls, whereas bearish speculators favor puts.
The San Francisco-based Ripple Labs, which has close ties to XRP, was accused by the Securities and Commission (SEC) of breaking securities laws in December 2020 when it raised $1.3 billion through the selling of XRP to investors. As a result, the token collapsed despite the market’s and bitcoin’s wild price swings.
A final decision could be made before the end of the year after the SEC and Ripple Labs filed for what is known as a “summary judgment” last week. In this legal process, the court decides based on the evidence presented without ordering a trial. In the XRP market, that would significantly reduce a source of uncertainty.
The XRP rise shows that trading motivated by news or events is in vogue right now. Another indication is that ATOM dramatically increased in value at the beginning of this month on speculation that network Cosmos would disclose the interchain security at a conference on September 26. This would allow the token to benefit from the network’s worth as a whole.
With the coin leaving a bearish trendline that had been in place for 10 months, the daily chart for XRP appears to have turned bullish.
If Ripple wins the case, Lo reported that “XRP might surge swiftly to $0.68 and then perhaps to $0.93 (Fibonacci retracement levels)”. Lo also noted that fund customers and high-net-worth individuals have been purchasing $0.50 strike XRP calls expiring on December 30.
Theoretically, those who purchase calls with a $0.5 strike price are wagering that the value of the cryptocurrency will increase before the expiration.
Purchasing a call option gives investors exposure to the potentially rapid upswing while limiting their possible losses, according to Lo.
For providing protection against price rallies, a call buyer compensates the seller by paying an option’s premium. The most a call buyer can lose in the event of a market decline is the premium received. In contrast, because an asset may theoretically appreciate to infinity, the ultimate profit could be limitless.
However, because various variables, including the time before expiration and volatility, affect pricing, trading options are typically more difficult. For knowledgeable or institutional investors with a lot of capital, it is better suited.
