Option market traders look to be placing bets for a continued upward move in bitcoin, according to a key metric. 

The put-call open interest ratio, which measures the number of put options open relative to call options, fell to 0.43 on Thursday – the lowest since March 24, according to crypto derivatives research firm Skew. The data takes into account open interest at leading derivatives exchanges Deribit, OKEx, CME, LedgerX and Bakkt. 

Notably, the ratio has declined sharply from 0.81 to 0.43 over the last four weeks.

“The put-call ratio can gauge the overall sentiment of traders and the lower ratio dictates that more traders are buying calls (bullish bets) than puts (bearish bets),” according to Lennard Neo, head of research at Stack, a provider of cryptocurrency trackers and index funds. “The decline toward 0.4 indicates that some form of bullishness is building," he said.

However, it is possible to argue that increased selling of calls is causing a drop in the put-call ratio. After all, open interest refers to the number of calls and put contracts that are active, or open, at a given point in time and does not reveal whether investors are buying call/put options or selling (known as "writing" in options markets). 

Traders usually buy calls when the market is expected to rise and buy puts when prices are likely to fall. That said, experienced traders often sell calls when the market is expected to remain range-bound and not rise beyond a certain level. Selling a call or put can be equated to selling a lottery ticket, where the maximum profit for the seller is the ticket price. The loss is huge if the buyer wins the lottery. 

However, in this instance, the decline in the ratio does look to have been fueled by increased call buying, a sign of bullish sentiment, as calls are commanding higher prices than puts. 

The one-month put-call skew, which measures the price of puts relative to that of calls, is currently at -1.9%. Three-month and six-month skews are also reporting negative values. 

“The move lower in the put-call ratio likely reflects the sharp increase in call buying on the Chicago Mercantile Exchange (CME)”, said Shaun Phoon, senior trader at Singapore-based QCP Capital. 

Data from CME, which is considered synonymous with institutional and macro trading, does show that the market is currently being driven almost entirely by the activity in calls. 

“As of June 4, about 25,000 bitcoin worth of call contracts were open in total and most of those are between the $10,000 to $15,000 strikes,” Ecoinometrics, a bitcoin analysis company, noted in its daily newsletter. 

Currently, there are 51 calls open against one put option. Clearly, the CME options market is heavily skewed to the bullish side. 

“The put-call open interest ratio has proven its fortitude and has dictated the right direction over the past few major moves such as the Fed decline, and post-crash rally,” said Stack’s Neo. 

The previous two instances of sub-0.5 readings on the ratio observed in early January and in the second half of March coincided with the beginning of major upswings in prices. 

The ratio bottomed out at 0.42 on March 24, after the cryptocurrency had dropped close to $6,500. In the following six weeks, prices rose back to highs above $10,000.

The likely scenario is that the options market is anticipating another move above $10,000. Bitcoin, however, needs to build a strong base above that level, as that would likely draw stronger chart-driven buying. Over the last 12 months, bitcoin has failed multiple times to keep gains above $10,000.

Disclosure: The author holds no cryptocurrency at the time of writing.