The expiration of the $900 million Bitcoin (BTC) weekly options on May 12 could play a decisive role in determining whether the price will succumb below $27,000.
Bitcoin price rejected again at $30,000
BTC bears will try to take advantage of macroeconomic headwinds, the FUD of Silk Road coins and the uncertainty caused by the rally in Bitcoin transaction fees to pull the price of Bitcoin lower in the coming days.
The BTC/USD pair broke above $29,800 on May 6, but the tide turned quickly as resistance turned out to be stronger than anticipated.
The subsequent two-day correction of 8.2% tested support at $27,400, favoring the thesis of a sideways listing as investors assess the dynamics of the economic crisis and its possible impact on cryptocurrencies.
Meanwhile, Berkshire Hathaway owner and billionaire investor Warren Buffett is no longer optimistic about the growth of the US economy. Such a bearish scenario for the global economy could explain why some Bitcoin traders decided to reduce exposure over the past week, greatly reducing the odds of breaking above $30,000.
Bitcoin Options: Bulls Were Overly Bullish
Open interest for the May 12 options expiration is $900 million, but the actual figure will be lower as bears expected price levels below $28,000.
These traders were overly bullish after Bitcoin price rallied 11.2% between April 9-14, testing the $31,000 resistance.
The ratio of 1.65 between call options and put options reflects the imbalance between the $560 million of open interest in call options and the $340 million in put options.
But if the Bitcoin price stays near $27,500 at 8:00 am UTC on May 12, only $11 million of these call options will be available. This difference occurs because the right to buy Bitcoin at $28,000 or $29,000 is worthless if BTC trades below that level at expiration.
Bitcoin Bulls Target $28,000 to Even the Scales
Below are the four most likely scenarios based on current price action. The number of option contracts available on May 12 for buy (bullish) and sell (bearish) instruments varies depending on the expiration price.
The imbalance that favors each side constitutes the theoretical benefit:
- Between USD 25,000 and USD 27,000: 100 purchase options (calls) vs. 9,900 put options. Bears in full control, earning $230 million.
- Between USD 27,000 and USD 28,000: 400 purchase options (calls) vs. 5,000 put options. The net result favors sales instruments in USD 120 million.
- Between USD 28,000 and USD 29,000: 1,500 purchase options (calls) vs. 2,100 put options. The result is balanced between put and call options.
- Between USD 29,000 and USD 30,000: 3,300 purchase options (calls) vs. 800 sale options (puts). The net result favors the call instruments (bullish) by USD 70 million.
This rough estimate considers call options used in bullish bets and put options exclusively in trades between neutral and bearish. Even so, this oversimplification does not take into account more complex investment strategies.
For example, a trader could have sold a put option, thereby gaining positive exposure to Bitcoin above a specified price. Unfortunately, there is no easy way to estimate this effect.
As a last resort, when it became clear that the Bitcoin network was working as intended, the selling pressure dissipated, causing the price of Bitcoin to stabilize around $27,500. However, traders should be cautious as the bears are still in a better position for the weekly options expiration on Friday, favoring negative price moves.
This article does not contain investment advice or recommendations. All investments and trades carry risks, and readers should do their own research when making a decision.
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