Options Expiry: The Calm Before the Storm?

Deribit's largest expiry yet sees nearly $5 billion worth of options expire successfully.

With BTC showing little volatility, there is a record-breaking $11 billion crypto options expiry on the horizon.

image: Deribit options expiry

Bitcoin (BTC) and ether (ETH) options worth over $11 billion will expire on Deribit this Friday. As the expiry looms, both cryptocurrencies are trading well above their “max pain points,” suggesting that the market may not see major volatility in the coming days. Let’s dive deeper into what this options expiry means and answer some questions you may have.

The Largest Expiry Yet

Deribit, a popular crypto exchange, is set to witness its largest options expiry to date. A whopping $7.7 billion worth of bitcoin options and $3.5 billion worth of ether options will expire on Friday. Of these, almost $5 billion are expected to expire in the money, leading to potentially heightened hedging and trading activities.

Understanding Options

Options are derivative contracts that give the purchaser the right, but not the obligation, to buy or sell an underlying asset at a predetermined “strike” price on a specific expiry date. On Deribit, one options contract represents either one BTC or one ETH. Call options give the right to buy, while put options give the right to sell. An in-the-money call option has a strike price lower than the market rate, while an in-the-money put option has a strike price higher than the market rate.

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Upside Exposure and Record Open Interest

The recent surge in bitcoin and ether prices has led investors to seek upside exposure through call options. As a result, there is a record notional open interest for in-the-money call options. Many clients have been rolling their positions from the December expiry to contracts expiring in January and subsequent months, which could continue until Friday’s settlement.

The ETF Decision and Future Outlook

All eyes in the crypto space are on the upcoming decision by the U.S. Securities and Exchange Commission (SEC) regarding the approval of a spot exchange-traded fund (ETF) that directly invests in bitcoin. The deadline for the decision is set for January 10. If approved, it could pave the way for continued upside price volatility in what is historically a bullish year due to the bitcoin reward halving.

Will Volatility Strike Again?

Historically, bitcoin has experienced volatility in the direction of its “max pain point” (MPP) leading up to options expiries. The MPP represents the level at which options buyers stand to lose the most on expiry. In the past, bitcoin’s price has veered towards the MPP before resuming its upward trend after settlement. However, analysts believe that the current prices of bitcoin and ether are far from their respective MPPs, suggesting that volatility may remain subdued this time.

Q&A

Q: What is the significance of options expiry?

A: Options expiry can potentially lead to increased hedging and trading activities in the market. It is an event that traders and investors closely monitor to gauge potential price movements and market sentiment.

Q: How do options contracts work?

A: Options contracts give the purchaser the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on a specific date. They can be used for various strategies, including hedging, speculation, and generating income.

Q: What is the relationship between options expiry and bitcoin price volatility?

A: Historically, bitcoin has seen volatility leading up to options expiries. Some market participants believe that options sellers manipulate the spot price towards the “max pain point” to maximize their gains, resulting in short-term price movements.

The Final Spark?

Market analyst Chang believes that we are approaching the “final spark” in the market. While prices are expected to remain steady before Friday’s expiry, Chang anticipates a significant move in the near future. It remains to be seen whether this move will be influenced by the options expiry or other market factors.

🔮 The Outlook: What’s Next for Bitcoin and Ether?

As we await the options expiry and the SEC’s ETF decision, the future of bitcoin and ether remains uncertain. However, there are a few trends and strategies to consider:

1. Keep an eye on post-expiry options trading tapes: After the expiry, monitor the options market for any new trading activities. These can provide insights into market sentiment and potential short-term price movements.

2. Diversify investment strategies: Consider diversifying your crypto portfolio by exploring a range of investment strategies, including spot investing, futures trading, and options contracts. This can help mitigate risks and take advantage of different market conditions.

3. Stay updated with regulatory developments: Regulatory decisions, such as the SEC’s ruling on the bitcoin ETF, can have a significant impact on the market. Stay informed about regulatory developments and their potential implications for the crypto industry.

📚 Reference Links:

1. Bitcoin Price | BTC Price Index and Live Chart – Blocking.net
2. Ethereum Price | ETH Price Index and Live Chart – Blocking.net
3. Top Crypto Apps Track Users
4. Binance Coin (BNB) Blazes Ahead

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