A staggering $10.8 billion worth of Bitcoin options are set to expire this week, leaving many investors wondering: will the bulls make a strong push towards $95,000 after this expiry?
Key Insights:
- Bearish options strategies continue to hold an advantage unless Bitcoin can achieve a significant price breakout above $90,000.
- Traders are treating $100,000 call (buy) options more as income-generating tools than as straightforward bets on a substantial Bitcoin surge.
Bitcoin (BTC) has seen several rebounds from the $87,000 mark in the past couple of months, yet traders are still skeptical about whether it can break decisively through the $95,000 threshold. The upcoming expiry of $10.8 billion in BTC options on Friday could prove crucial for bullish investors, particularly since call options are drawing the majority of market interest.
Currently, the total open interest for call options stands at $6.6 billion, which is a remarkable 57% higher than the $4.2 billion dedicated to put (sell) options. However, this does not necessarily indicate that bulls have the upper hand. Deribit remains the leading platform in this space, boasting a dominant 78.7% market share, while OKX comes in second at 6.3%, and the Chicago Mercantile Exchange (CME) holds a distant third with only 5%.
Interestingly, less than 17% of the call options expiring on January 30 at Deribit are positioned below $92,500. Additionally, considering Bitcoin's lowest price point over the last two months was $84,000, it's likely that call options priced at $70,000 and lower are being employed for intricate on-chain strategies rather than outright speculative plays on price increases. For instance, purchasing a call option that is 20% below the current market price can be prohibitively expensive for most retail traders.
As an illustration, a call option for Bitcoin at $70,000 set to expire on February 27 is currently trading at 0.212 BTC, which is notably higher than the 0.109 BTC for an $80,000 call option. This price discrepancy highlights why most bullish traders tend to gravitate toward options that are closer to or slightly above the actual market price. On the flip side, call options priced at $110,000 and above are often overlooked since their cost is less than 0.002 BTC, equating to around $180.
Bearish Strategies Gain Traction Below $90,000
A considerable portion of the call options priced at $100,000 or higher can be attributed to covered call strategies. In this approach, the seller collects an upfront premium, akin to earning interest on a bond, yet they still retain ownership of the underlying Bitcoin, capping their potential profits. As a result, these strategies are rarely seen as purely bullish indicators.
Between the prices of $75,000 and $92,000, call options at Deribit amount to $850 million. To assess whether bulls are better positioned ahead of Friday's expiry, one must analyze the put options landscape to see if they are being used for protection against downside risk or neutral positioning. A key indicator would be the volume of puts below $70,000, where the cost is less than $300.
Despite their smaller presence compared to call options, put instruments in the range of $86,000 to $100,000 total $1.2 billion at Deribit. Therefore, even if we assume that puts priced at $102,000 and higher won't benefit from a drop in price, it appears that bearish strategies are better poised for the January expiry.
Below are three potential outcomes for the impending BTC options expiry at Deribit based on the prevailing price trends:
- If Bitcoin's price lands between $86,000 and $88,000, the outcome favors put options by $775 million.
- Should it fall between $88,001 and $90,000, the net result will still favor put options, but by a narrower margin of $325 million.
- If Bitcoin settles between $90,001 and $92,000, call options will then have the advantage, with a net result favoring them by $220 million.
As long as Bitcoin's price stays below the $90,000 mark, the inherent mathematical advantage continues to lean in favor of bearish options strategies.
But here's where it gets controversial: with so much capital at stake, are we truly witnessing a reflection of market confidence, or is this just a complex game of strategic positioning? What do you think? Are bullish or bearish strategies more likely to prevail, and why? Feel free to share your thoughts in the comments!
