Data Shows Neutral View of Bitcoin Traders Ahead of $ 750 Million BTC Options Expiration on Friday

Data Shows Neutral View of Bitcoin Traders Ahead of $ 750 Million BTC Options Expiration on Friday

Bitcoin (BTC) has bounced 11% from the low of $ 39,650 reached on January 10 and the price is currently struggling with the $ 44,000 level. There are multiple explanations for the recent weakness, but none of them seem sufficient to justify the 42% correction that took place from the November 10 all-time high at $ 69,000.

At that time (Nov 12), negative remarks were issued from the United States Securities Commission (SEC) regarding the rejection of VanEck’s physical Bitcoin exchange-traded fund (ETF). The regulator cited the inability to avoid market manipulation due to unregulated exchanges and the large trading volume based on the stablecoin Tether (USDT).

Then, on December 17, the US Financial Stability Oversight Board recommended that state and federal regulators review the regulations and tools that could be applied to digital assets. On January 5, the price of BTC corrected again following the December session of the Federal Reserve’s FOMC, which confirmed plans to ease debt purchases and likely raise interest rates.

As for derivatives markets, if the price of Bitcoin trades below $ 42,000 as of January 14 expiration, the bears will have a net profit of $ 75 million on their BTC options.

Added Open Interest of Bitcoin Options for Jan 14. Source: Coinglass

At first glance, the $ 455 million call options is dwarfing the 295 million put options, but the 1.56 call-to-put ratio is misleading because the 14% price drop in recent years three weeks will likely eliminate most bullish bets.

If the price of Bitcoin sustains below $ 44,000 at 8:00 am UTC on January 14, only $ 44 million of those call options will be available at expiration. There is no value in the right to buy Bitcoin at $ 44,000 if BTC is trading below that price.

The bears could pocket a profit of $ 75 million if BTC is below $ 42,000

Here are the four most likely scenarios for the $ 750 million options to expire on January 14. The imbalance that favors each side represents the theoretical benefit. In practice, depending on the expiration price, the number of purchase and sale contracts that are activated varies:

  • Between $ 40,000 and $ 43,000: 480 call options vs. 2,220 put options. The net result is USD 75 million in favor of the sale instruments (bearish).
  • Between $ 43,000 and $ 44,000: 1,390 call options vs. 1,130 put options. The net result is balanced between the call and put options.
  • Between $ 44,000 and $ 46,000: 1,760 call options versus 660 put options. The net result is USD 50 million in favor of buying instruments (bullish).
  • Between $ 46,000 and $ 47,000: 1,220 call options vs. 520 put options. The net result is USD 125 million in favor of purchase instruments (bullish).
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This crude estimate considers that put options are used in neutral bets on bets and call options exclusively in bullish operations. However, this oversimplification does not take into account 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 $ 46,000 for a decent win

The only way the bulls can score a significant profit on the Jan 14 expiration is by holding the price of Bitcoin above $ 46,000. However, if the current negative short-term sentiment prevails, the bears could easily push the price down 4% from the current $ 43,800 and gain up to $ 75 million if the price of Bitcoin stays below $. 42,000.

Currently, the options markets appear balanced, giving the bulls and bears the same odds for Friday’s expiration.

The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Every investment and business move involves risk, you should do your own research when making a decision.