Buckle up, crypto enthusiasts! The Bitcoin market is set for a wild ride this week as a staggering $9 billion worth of Bitcoin options contracts are slated to expire on Friday. This expiry, coming just a day after the U.S. Thanksgiving holiday, is poised to inject a hefty dose of volatility into the market, giving traders plenty to be thankful for.
Diving into the Options Expiry Data
According to data from leading crypto derivatives exchange Deribit, Bitcoin options contracts worth a whopping $9.4 billion are set to expire at 08:00 UTC on November 29. Of this immense notional value, approximately 45% (or $4.2 billion) of the contracts are currently “in-the-money” (ITM).
Breaking down the ITM contracts further, nearly 80% of them are call options with strike prices below the current Bitcoin spot price. This substantial concentration of ITM calls could fuel significant volatility as the expiry date approaches, with investors looking to close out their profitable positions.
The Max Pain Theory
Bitcoin’s current price, hovering above $98,000, is significantly higher than the max pain price of $78,000. The max pain price is the point at which option holders experience the greatest losses, while option sellers (typically market makers) achieve maximum profit.
With such a large gap between the spot price and max pain, many call options are deep ITM. This situation may force market makers to hedge their positions by buying Bitcoin, potentially fueling a further rally and pushing the price towards the psychologically significant $100,000 level.
Puts: Hedges or Bearish Bets?
On the flip side, the majority of the out-of-the-money (OTM) options are puts, totaling $4.1 billion (98% of the total OTM notional value). These puts likely represent a mix of downside hedges and outright bearish bets.
“The majority of these expiries will likely be rolled over into puts as most of this open interest represents hedges and not outright downside bets in my opinion.”
– Andre Dragosch, European Head of Research at Bitwise
If Dragosch is correct, and most of these puts are indeed hedges, it would mean less downward pressure on the market as the unrealized losses on these positions will not materialize into actual sell orders.
Flashback to October’s Expiry
Last month’s options expiry on October 25 saw over $4 billion in contracts expire, resulting in a 3% dip in Bitcoin’s price. With more than double the notional value set to expire this Friday, the market could be in for an even wilder ride.
Gearing Up for Volatility
As the expiry date looms, traders and investors are gearing up for a potentially turbulent end to the week. The interplay between the large volume of ITM calls and the concentration of OTM puts will likely dictate the direction and magnitude of Bitcoin’s price movements.
With the U.S. Thanksgiving holiday providing a brief respite from trading, the market could be poised for an explosive return on Friday. As always, crypto enthusiasts will be keeping a close eye on the charts, ready to capitalize on any opportunities that arise from the increased volatility.
“You see most of open interest concentrated in calls around $82,000 strike and $70,000 strike in puts. Max pain theory would suggest that we would move towards this range between $70,000 – $82,000 but this seems to be relatively unlikely.”
– Andre Dragosch, European Head of Research at Bitwise
While the max pain theory suggests a move towards the $70,000 to $82,000 range, Dragosch believes this to be unlikely given the current market dynamics and pronounced supply scarcity.
The Road Ahead
As the dust settles after the options expiry, the Bitcoin market will likely continue to be influenced by a myriad of factors, including macroeconomic developments, regulatory shifts, and evolving institutional adoption.
However, for now, all eyes are on Friday’s expiry and the potential fireworks it could bring. Will Bitcoin finally break through the elusive $100,000 barrier, or will the options expiry lead to a short-term pullback? Only time will tell, but one thing is for certain: the crypto market is never short on excitement.
So, as you sit down to enjoy your Thanksgiving feast, be sure to keep an eye on your crypto portfolio. You might just have an extra reason to be thankful this year, courtesy of Bitcoin’s explosive options expiry.
