Despite positive U.S. inflation data bolstering long-term bullish sentiment for Bitcoin (BTC), institutional investors remain wary of a near-term price decline. Analysis of options trading data from the Chicago Mercantile Exchange (CME), a key indicator of institutional activity, suggests lingering skepticism about a rally in the immediate future.

According to CF Benchmarks, implied volatility for short-dated out-of-the-money (OTM) put options has surpassed that for OTM calls following the softer-than-expected U.S. Consumer Price Index (CPI) release. These options, tied to CME's cash-settled standard bitcoin futures contract, indicate investors' heightened demand for downside protection.

"The volatility skew, showing the disparity in implied volatility between OTM puts and calls, is notably pronounced in shorter-dated options. The higher implied volatility demand for OTM puts compared to calls suggests investors remain cautious about near-term downside risks and are willing to pay a premium for protective puts," CF Benchmarks stated in a note shared with CoinDesk.

Put options, which protect the buyer from price drops, indicate a bearish market sentiment, as buyers profit from or hedge against potential price declines. Conversely, call options offer protection against price increases. Implied volatility, an estimate of the underlying asset's future volatility based on options prices, rises with increased demand for options.

CF Benchmarks, a U.K.-regulated provider of digital assets benchmarks, collaborates with CME to publish several crypto-related reference rates, including the CME CF Bitcoin Reference Rate and CME CF-Ether Dollar Reference Rate.

The volatility surface, a three-dimensional plot showing the implied volatilities of bitcoin options, reveals a pronounced post-CPI bias towards OTM puts expiring in 20 to 40 days. As the focus shifts to longer-dated options, the skew favors calls, indicating growing investor optimism about Bitcoin’s long-term prospects.

"This indicates that investors are increasingly optimistic about bitcoin’s longer-term prospects and are willing to pay more to be positioned for potential upside by buying OTM calls," CF Benchmarks explained. The chart also shows relatively flat implied volatility levels for longer-dated options, which CF Benchmarks interprets as a sign of increased institutional participation. Institutional investors, often having a more nuanced market view, are typically less prone to extreme sentiment swings.

A similar long-term bullish bias is observed in options trading on Deribit, the leading platform accounting for over 85% of global crypto options activity. As of now, the notional open interest on Deribit stands at $15.63 billion, whereas CME options have an open interest of $417 million.

At the time of writing, Bitcoin was trading at $65,550, marking a 6.6% weekly gain, according to CoinDesk data. This data reflects ongoing cautious optimism among institutions, balancing immediate risk aversion with long-term growth expectations.