Bitcoin and Ether Options Expiry Sparks Volatility Anticipation

Cryptocurrency markets are abuzz with anticipation as a significant options expiry worth $15 billion looms on the horizon. The impending settlement of bitcoin and ether options contracts, valued at $9.5 billion and $5.7 billion respectively, has the potential to inject volatility into the market.

On Friday, Deribit, a prominent crypto options exchange, will finalize these contracts, with many expected to expire in-the-money (ITM). This expiration could lead to increased upward pressure or volatility, especially around the $70,000 price level.

Quarterly Expiry Impact

Market observers predict that the quarterly expiry of these substantial options contracts could trigger bullish price movements. Deribit, known as the world’s leading cryptocurrency options exchange, will conclude contracts totaling $15.2 billion. Bitcoin options dominate the expiry, accounting for 62% of the total notional open interest slated for settlement, while ether options make up the remainder.

This $15 billion expiry stands out as one of the largest in Deribit’s history, wiping out a significant portion of both bitcoin and ether’s total notional open interest across various maturities. Notional open interest represents the dollar value of active contracts at a given time, with each options contract on Deribit equivalent to one BTC or ETH.

Options Mechanics

Luuk Strijers, Deribit’s chief commercial officer, highlighted the potential impact of ITM expiries on market dynamics. Call options expiring ITM allow buyers to purchase the underlying asset at a predetermined price, while put options grant the right to sell. The current market conditions, with bitcoin hovering around $70,000, indicate that a substantial portion of bitcoin options are set to expire profitably.

Strijers noted, “These levels are higher than usual, which can also be seen in the low max pain levels. The reason is, of course, the recent price rally. Higher levels of ITM expiries might lead to potential upward pressure or volatility in the underlying market.” The market’s reaction to these expiries could shape short-term price movements.

Bitcoin and Ether Options Expiry

Dealer Hedging Strategies

David Brickell, head of international distribution at FRNT Financial, emphasized the role of dealer hedging in amplifying market volatility. He explained, “The big impact, however, is [from] the gamma positioning of dealers into the event. Dealers are short some $50 million of gamma, with the majority focused at around the $70,000 strike. As we near the expiry, that gamma position gets larger and the forced hedging will exacerbate volatility around $70,000, providing for some whippy, choppy moves either side of the said level.” Dealer actions, particularly around the $70,000 strike price, could lead to erratic price fluctuations.

Conclusion

As the crypto market braces for the $15 billion options expiry, all eyes are on the potential impact on bitcoin and ether prices. The convergence of significant ITM expiries, dealer hedging activities, and market dynamics sets the stage for a period of heightened volatility. Traders and investors are advised to closely monitor price movements and exercise caution in the face of potential market turbulence.

A former software engineer turned cryptocurrency enthusiast, Riley Emerson brings a unique tech-savvy perspective to the world of Bitcoin and blockchain. When not delving into the latest crypto trends, you can find Riley surfing the waves or tinkering with IoT gadgets.