In brief
- About $11 billion in Bitcoin options, roughly 135,000 BTC and a third of Deribit's Bitcoin options open interest, expire on Friday.
- Max pain, the price where option sellers pay out the least, sits at $78,000 against a market price near $81,500, and about 86% of the contracts are out of the money.
- The Fed held rates at 3.75% to 4% on Wednesday in a 10-2 vote with two dissenters favoring a hike, and the 10-year Treasury yield closed at 5.05%.
About $11 billion in Bitcoin options expire on Friday on Deribit, a crypto options exchange, with Bitcoin trading near $81,500 a day after the Federal Reserve held interest rates steady while two of its officials voted to raise them.
Even people who never touch options have a stake, because the traders who sold these contracts must buy or sell real Bitcoin to hedge as the price moves, which can add to swings without any news behind them.
An option is a contract that gives its holder the right, but not the obligation, to buy (a call) or sell (a put) Bitcoin at a fixed price, called the strike, by a set date. Friday’s batch covers about 135,000 Bitcoin in contracts, roughly 88,700 calls and 46,500 puts, per Deribit’s data.
That equals about a third of all Bitcoin options open on the exchange and roughly 70% more than the $6.4 billion that expired in August. The put-to-call ratio, which compares bets on a drop with bets on a rally, is 0.52, so calls outnumber puts nearly two to one, which means there’s optimism in terms of price going up.
The $11 billion is notional value, the face value of the contracts at today’s price, not money changing hands. About 86% of the contracts are out of the money, meaning they would be worthless at current prices, and settling at today’s level would move roughly $130 million, about 1% of the headline figure.
→Traders watch the Bitcoin options expiry day as one of the key events for their fundamental analysis. Another catalyst to consider is the Federal Reserve’s policy on rates. The Fed yesterday held firm at 3.75% to 4.00%, with expectations rising for another hike this year. Interest rates impact the whole economy as investment in risky assets and businesses would be less attractive than lending giving your money to the government through Treasuries.
Traders also watch max pain, the price at which the most contracts expire worthless and sellers pay out the least. Deribit’s open interest puts it at $78,000, about $3,500 below the market, though it describes positioning and does not predict where Bitcoin will settle. After all, this is crypto, and wild movements are not a strange occurrence.
The heaviest call bets sit at $95,000 and $100,000, about 16% and 23% above the current price, while the biggest put cluster is at $70,000, about 14% below. Friday’s expiry also saw the most trading of any Bitcoin options expiry on Deribit over the past 24 hours, with more than 6,000 contracts changing hands
Friday’s batch is smaller than the $15 billion expiry in March, but about three times the $3.6 billion expiry from April 2021.
The next test is December 25, when about 135,500 Bitcoin in options are already set to expire, roughly the same size as Friday’s and about two weeks after the Fed meets December 8-9.
Disclaimer
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.