Saturday, October 1

Bitcoin Bulls Seek To Profit From Friday’s $ 195 Million BTC Options Expiration


Over the past ten days, the price of Bitcoin (BTC) tested the resistance at $ 44,500 on multiple occasions, and this marked a 16% decline from the local high of $ 53,000 the previous week. Not even the $ 3.4 billion long futures contract settlements that occurred on Sept. 7, while BTC fell 18.7%, was enough to remove bullish optimism, according to data from the options markets.

Bitcoin price on Coinbase in USD. Source: TradingView

If historical data plays any role in the price of Bitcoin, the month of September had negative returns in four of the previous five years, and BTC ended up trading in August at $ 47,110.

Regardless of price, adoption by institutional investors has been growing steadily. On September 13, Morgan Stanley, one of the largest banks in the United States, appointed a leading cryptocurrency analyst to its dedicated cryptocurrency research team.

But the most significant positive trigger for a 50% or more bull run comes from the approval of an exchange-traded fund (ETF) by the United States Securities and Exchange Commission (SEC). Fidelity Digital Assets, an investment arm of the $ 4.2 trillion global fund manager, held a private meeting on September 8 with various SEC officials to discuss the benefits and risks of a Bitcoin tradable product.

Fidelity applied for a Bitcoin ETP called the Wise Origin Bitcoin Trust in March 2021, but the regulator continues to postpone issuing its final decision. In addition, since then there have been more than 20 similar requests from other companies and none so far; analyzed by the SEC.

Bitcoin options add open interest for September 3. Source: Bybt.com

The September 17 expiration will be a test of strength for bears because 88% of the $ 310 million put options have been placed at $ 47,000 or less. Consequently, if BTC trades above that price on September 17, the open interest of the neutral to bearish put drops to a meager $ 36 million.

A put option is a right to sell Bitcoin at a predetermined price on the set expiration date. Therefore, a $ 45,000 put option becomes worthless if BTC trades above that price at 8:00 am UTC on September 17.

The apparent advantage of bulls is deceptive

A broader view also gives the bulls some advantage, as the total open interest of the call options instrument (buy) is $ 500 million, a 62% advantage based on the call-put ratio.

However, this data is misleading because excessive bullish optimism could wipe out most of your bets. For example, if Bitcoin’s expiration price is below $ 47,000, its open interest drops to $ 34 million. After all, what good is the right to acquire Bitcoin at $ 52,000 if it is trading below that price?

Below are the four most likely scenarios that consider current price levels. The imbalance that favors either party represents the potential benefit of maturity. The data below shows how many contracts will be available on Friday, depending on the expiration price.

  • Between $ 45,000 and $ 46,000: 240 calls versus 1,980 put options. The net result is $ 78 million in favor of put protection instruments (bearish).
  • Between $ 46,000 and $ 48,000: The net result is balanced between bears and bulls.
  • Between $ 48,000 and $ 50,000: 3,500 calls versus 620 put options. The net result is $ 143 million favoring call options (bullish).
  • Above $ 50,000: 4,150 calls versus 260 put options. The net result is a $ 195 million complete dominance of bullish instruments.

This gross estimate considers that call options are used exclusively in bullish strategies and put options in neutral to bearish operations. Unfortunately, real life is not that simple because more complex investment strategies may have been implemented.

There are incentives for bulls to try to break $ 50,000

Both buyers and sellers will show their strength in the hours leading up to Friday’s expiration, and the bears will try to minimize the damage by keeping the price below $ 48,000. On the other hand, the bulls have decent control over the situation if BTC remains above that level.

The highest stress level for bears is $ 50,000, where bulls have significant incentives to dominate the weekly expiration and get a decent $ 195 million lead.

There is still room for additional volatility ahead of Friday, and the bulls appear to be better positioned.

The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement involves risk. You should do your own research when making a decision.