XRP Hitting $5 Gets Millions in Bets But There Is a Catch

Many traders are betting on XRP reaching $5, but there’s a catch—most of these bets come in the form of covered calls, according to Deribit’s Asia business development head. This suggests that while there is optimism about XRP’s price surge, many traders are also hedging their risk rather than making outright bullish wagers.

Key points:

• Despite XRP's decline in price, the $5 call option remains the most widely traded on Deribit.
• However, these are likely covered call strategies rather than purely bullish wagers.

The payments-focused cryptocurrency XRP reached a high of $3.40 in January but has since fallen 30% to $2.40.

Despite this drop, the $5 call option remains the most popular trade on Deribit, presenting a potential upside if XRP surpasses that price. However, this doesn’t necessarily reflect a strongly bullish sentiment among traders.

As of the latest data, the $5 call option remains the most traded strike on Deribit, with a notional open interest of $3.84 million—the highest among all XRP options on the platform, according to Deribit Metrics.

Notional open interest represents the total dollar value of all active options contracts. On Deribit, each options contract corresponds to one XRP.

"Most of these are covered calls," said Lin Chen, Deribit's Asia Business Development Head, in an interview with CoinDesk. This helps explain the significant accumulation of out-of-the-money (OTM) calls.

The covered call strategy involves selling out-of-the-money (OTM) call options while simultaneously holding the underlying asset, XRP. This allows traders to earn a premium from selling the call while still maintaining their holdings, helping to offset potential losses if the market moves unexpectedly.

This approach is widely used to generate additional yield on existing assets and is a common practice in traditional financial markets, as well as in Bitcoin and Ethereum options trading.