Tuesday, August 16

Victory is to be taken on Friday’s $ 950M Bitcoin Options Expiration


The price of Bitcoin (BTC) was down this week and naturally bears will always find some sign of reversal when the price shows strength, such as the 8% gain on November 28. Of course, technical analysis is not an exact science, so there is room for interpretation and most traders look at multiple time frames to find a narrative that suits their bias.

Currently, the price of BTC is in a descending channel that started on October 31, and if this pattern develops, Bitcoin could drop to $ 50,000 in the short term.

Bitcoin / USD price in FTX. Source: TradingView

Cryptocurrency markets crashed on November 26 after concern over a new variant of COVID-19 triggered a sell-off in the global market. When Bitcoin fell below $ 54,000, the bears saw a potential gain of $ 215 million on Friday’s options expiration, but that changed after the price of BTC regained the support of $ 57,000.

Additionally, regulatory concerns emanating from the United States continue to pressure the market. On November 24, the chairman of the US Senate Banking Committee requested information from issuers and exchanges of stablecoins before December 3.

In early November, the President’s Task Force on Financial Markets released a report suggesting that issuers of stablecoins in the US should be subject to “appropriate federal supervision” similar to bank law.

Fueled by potential government interference and short-term negative consequences, the Bitcoin bears are likely to make a profit of $ 80 million on December 3.

Bitcoin options add open interest for December 3. Source: Coinglass.com

At first glance, the $ 460 million call options are evenly matched by the $ 485 million put instruments, but the 0.96 call-put ratio is misleading because the 17 % from $ 69,000 will probably wipe out most of the bullish bets.

For example, if the price of Bitcoin remains below $ 57,000 at 8:00 am UTC on Friday, only $ 24 million of those call options will be available at expiration. Therefore, there is no value in the right to buy Bitcoin at $ 60,000 if it trades below that price.

Bears are comfortable with Bitcoin below $ 57,000

Listed below are the four most likely scenarios for the expiration of the $ 950 million options on December 3. The imbalance that favors each side represents the theoretical benefit. In other words, depending on the expiration price, the number of call (buy) and put (sell) contracts that are activated varies:

  • Between $ 54,000 and $ 56,000: 290 call options vs. 3,480 put options. The net result is $ 175 million that favor put options (bearish).
  • Between $ 56,000 and $ 58,000: 750 calls versus 2,160 put options. The net result is $ 80 million in favor of put instruments (bearish).
  • Between $ 58,000 and $ 60,000: 1,510 calls versus 1,040 put options. The net result is $ 30 million favoring call options (bullish).
  • Above $ 60,000: 2,760 calls versus 860 put options. The net result is $ 115 million in favor of call (bull) instruments.

This gross estimate considers call options that are used in bullish bets and put options exclusively in neutral to bearish operations. However, this oversimplification ignores more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin (BTC) above a specific price. But, unfortunately, there is no easy way to estimate this effect.

Bulls need $ 58,000 or more to balance the scale

The only way for the bulls to avoid a loss at the December 3 expiration is by pushing the price of Bitcoin above $ 58,000, which is down 2% from the current $ 56,900. However, if the current short-term negative sentiment prevails, the bears could exert some pressure and attempt to make up to $ 175 million in profit if the price of Bitcoin stays below $ 56,000.

Currently, data from the options markets slightly favors put options, thus creating opportunities for additional FUDs and unexpected market dips.

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