Newsletter
- Approximately $11 billion worth of Bitcoin options will expire on Friday, involving around 135,000 Bitcoins, which accounts for about one-third of the Deribit outstanding Bitcoin option contracts.
- "The biggest pain point" – that is, the lowest price that the option seller has to pay – is at $78,000, while the market price is close to $81,500. Currently, about 86% of the contracts are out of the money.
- The Federal Reserve maintained interest rates between 3.75% and 4% on Wednesday with a vote of 10 to 2, with two officials advocating for an increase; the yield on 10-year U.S. Treasury bonds closed at 5.05%.
A day after the Federal Reserve maintained its interest rates unchanged, although two officials voted in favor of a rate hike, the price of Bitcoin hovered around $81,500. Meanwhile, approximately $11 billion worth of Bitcoin options will expire on Friday at the crypto options exchange Deribit.
Even those who never participate in options trading will be affected, as traders who sell these contracts will buy or sell actual Bitcoin for hedging in response to price fluctuations, which may amplify market volatility in the absence of new news to drive it.
An option is a type of contract that grants the holder the right, but not the obligation, to buy (call option) or sell (put option) Bitcoin at a fixed price (i.e., the strike price) before a specific date. According to Deribit data, on Friday, these expiring contracts covered approximately 135,000 Bitcoins, of which about 88,700 were call options and 46,500 were put options.
This corresponds to approximately one-third of all outstanding Bitcoin option contracts on that exchange, and it is also about 70% higher than the $6.4 billion that expired in August. The put/call ratio is 0.52, a metric used to compare the size of bets placed on a decline to those placed on an increase; this means that the number of call options is nearly twice that of put options, reflecting the market's still optimistic sentiment regarding price increases.
The $11 billion mentioned is the nominal value, which is the face value of the contracts calculated at current prices, and it does not represent an actual transfer of equivalent funds. At current prices, approximately 86% of the contracts are out of the money, meaning they will become worthless; if settled at these current levels, the actual settlement amount would be around $130 million, which is only about 1% of headline figure.
Traders regard the expiration date of Bitcoin options as one of the key events in fundamental analysis. Another catalytic factor that needs to be considered is the Federal Reserve's interest rate policy. Reports indicate that the Fed maintained interest rates at 3.75% to 4.00% on Wednesday, and market expectations for another interest rate hike this year are growing. Interest rates affect the entire economy, as when lending money to the government and purchasing U.S. Treasury bonds yields higher returns, the attractiveness of investing in risky assets and businesses decreases.
Traders also pay attention to the "biggest pain point," which is the price at which the most contracts expire and are canceled, resulting in the least compensation for sellers. According to the open position data from Deribit, this level is around $78,000, which is about $3,500 lower than the current market price. However, Deribit also points out that this reflects the distribution of positions and does not predict where Bitcoin will ultimately settle. After all, this is the crypto market, and sharp fluctuations are not uncommon.
The largest bullish bets are concentrated at $95,000 and $100,000, which are approximately 16% and 23% higher than the current price, respectively; the largest bearish bets are concentrated at $70,000, which is about 14% lower than the current price. In the past 24 hours, these options that expired on Friday were also the most actively traded among all Bitcoin options Deribit that expired, with over 6,000 contracts being traded.
Although the scale of these options, which expire on Friday, is smaller than the $15 billion that expired in March, it is approximately three times the $3.6 billion that expired in April 2021.
The next test will come on December 25th, when approximately 135,500 Bitcoin-related options will expire, a scale roughly comparable to that of Friday's batch; this date also falls about two weeks after the conclusion of the Federal Reserve's meeting on December 8th to 9th.
Disclaimer
The views and opinions expressed by the author are for reference only and do not constitute financial, investment, or other advice.
