Tail risk refers to the risk of an asst moving three standard deviations from its current price on the back of a rare event.
Relative richness of out-of-the-money call and put options tied to bitcoin suggests traders are pricing in"tail risk" in the bitcoin market.
Traders fear such an event in bitcoin even though the cryptocurrency has been listless around $26,000 since falling over 10% in the week ended Aug. 20. BTC's annualized seven-day historical or realized volatility has cooled to 26% from nearly 60% seen early last week, according to Amberdata. An elevated index indicates relatively stronger demand for OTM options or call options at strikes higher than BTC's current price and puts at strikes lower than BTC's going market rate. In other words, it signifies traders' fear of the tail risk or sensitivity to uncertainty.
The butterfly index remains elevated, indicating lingering fears of an outsized move in bitcoin's price.
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