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$1.1B in Bitcoin options expire on Friday, but data points to a sub-$55K BTC price

The Cointelegraph ​

Cryptocoins News / The Cointelegraph ​ 256 Views

BTC bulls are looking at a $300 million loss after last week’s 11.5% correction set them up as the losers of Dec. 10’s $1.1 billion options expiry.

Bitcoin (BTC) bulls are still licking their wounds from the bloody Dec. 4 correction, which saw the price collapse from $57,000 all the way to $42,000. This 26.5% downside move caused $850 million in long BTC futures contracts to be liquidated, but more importantly, it shifted the “Fear and Greed index” to its lowest level since July 21.

Bitcoin/USD price at FTX. Source: TradingView

It is somehow strange to compare both events, as the July 21 sub-$30,000 low would have erased the entire gains in 2021. Meanwhile, the $42,000 low from Dec. 4 is still a 44% gain year-to-date. Compare this against the S&P 500, which is up 21% in 2021, and the WTI oil price, which has accrued a 41% gain.

Bulls might be focused on the Bitcoin reserves held at exchanges, which continues to descend and currently sits at the lowest level in three years. According to data from CryptoQuant, there are now less than 2.27 million BTC deposited at exchanges and having fewer coins available for trading signals that investors are unwilling to sell in the short term. This is a dynamic that many investors consider to be bullish.

Even with the apparent balance between call (buy) and put (sell) options on Friday’s $1.1 billion expiry, bears are better positioned after Bitcoin stabilized slightly above $50,000.

Bitcoin options aggregate open interest for Oct. 10. Source: CoinGlass

A broader view using the call-to-put ratio shows a modest 7% advantage to Bitcoin bulls because the $555 million call (buy) instruments have a larger open interest versus the $520 million put (sell) options. However, the 1.07 indicator is deceptive because the 11.5% price drop over the past week caused most bullish bets to become worthless.

For example, if Bitcoin’s price remains below $52,000 at 8:00 am UTC on Dec. 10, only $50 million worth of those call (buy) options will be available. That effect happens because there is no value in the right to buy Bitcoin at $55,000 if it is trading below such price.

The numbers suggest that bulls are set for a major loss

Below are the three most likely scenarios based on the current price action. The number of option contracts available on Dec. 10 for bulls (call) and bear (put) instruments vary depending on the expiry BTC price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $47,000 and $50,000: 400 calls vs. 6,600 puts. The net result is $300 million favoring the put (bear) instruments.
  • Between $50,000 and $54,000: 1,700 calls vs. 4,700 puts. The net result is $160 million favoring the put (bear) instruments.
  • Above $54,000: 2,400 calls vs. 2,900 puts. The net result favors the put (bear) options by $30 million.

This crude estimate considers the call options being used in bullish bets and the put options that are exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.

For instance, a trader could have sold a call option, effectively gaining a negative exposure to Bitcoin above a specific price. But, unfortunately, there’s no easy way to estimate this effect.

Bears will do their best to hold BTC below $50,000

Bitcoin bears need a gentle push to sub-$50,000 to score a $300 million profit. On the other hand, bulls would need a 7.2% price recovery from the current $50,500 to reduce their loss by half.

Considering the $2 billion liquidation of leverage long positions on Dec. 4, bulls are likely trying to stay afloat and will be unwilling to add more risk right now. It would be unnecessarily ineffective for bullish investors to waste their efforts trying to salvage this short-term loss.

So, in this instance, bears look set to maintain the upper hand in this weekly options expiry.

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


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