Bitcoin options, Ethereum options, expiry, market dynamics, price impact, volatility, derivatives market
Introduction: Today marks the expiration date for a significant number of options contracts on Bitcoin (BTC) and Ethereum (ETH). Let’s delve into how this event might influence the prices of the underlying assets.
Options Expiry Overview: Cryptocurrency options are derivative contracts allowing traders to buy or sell assets at a predetermined price on a specific expiration date. Unlike futures, options grant flexibility, as the owner is not obligated to execute the trade. This flexibility makes options a versatile tool compared to futures, which mandate position closure regardless of profit or loss.
Approximately 37,000 BTC contracts and 268,000 ETH contracts, with a notional value of $1.58 billion and $610 million, respectively, are set to expire today.
Bitcoin Options Analysis: According to Greeks.live, the put-to-call ratio for BTC options is holding at 1.02. The maximum pain point, where the asset would incur the most financial losses for the highest number of holders, is around $42,000. This implies that the option strike price for this week is relatively close to the maximum pain point.
Ethereum Options Analysis: The put-to-call ratio for ETH options is 0.66, with a maximum pain point at $2250.
According to Greeks.live, “This week, the crypto market faced a pullback, with BTC momentarily dropping to $40,000. Traders sold a significant amount of protective options, resulting in more put positions than call positions this week. Looking at the option data, we see that the main trades are still concentrated on BTC options, IV has remained unchanged for almost a month, and significant changes in options are still happening.”
Anticipated Impact on BTC and ETH Prices: Bitcoin experienced several drops below $41,000 this week. However, after the release of U.S. inflation data and the Federal Reserve announcement of a pause in the key interest rate hike cycle, the leading cryptocurrency managed to recover some losses. At the time of writing, BTC is trading around $42,600.
Ethereum’s decline was less dramatic. After briefly descending to the $2150 region, ETH quotes returned to the $2250-2300 range.
Conclusion: Predicting how the market will behave on the day of a large options expiry is challenging, especially if additional events affect the news background. Traders need to closely monitor the situation to prevent increased volatility from triggering unwanted stop-loss orders or leading to incorrect trading decisions.
It’s essential to remember that the impact of options expiry on the price of the underlying asset is typically short-term. Usually, the market returns to its normal state the next day, and significant price deviations are compensated for.