How the expiration of $530 million options will affect the price of bitcoin (BTC)
Date: 2023-08-05 Author: Karina Ziganova Categories: BLOCKCHAIN, CRYPTO PAYMENTS
A large number of Bitcoin (BTC) and Ethereum (ETH) options expire today. We understand how this will affect the price of underlying assets.
Cryptocurrency options are derivative contracts that allow traders to buy or sell an asset at a specific price on a specific expiration date. If the option holder decides not to buy or sell cryptocurrency, he is not required to do so. This makes options more flexible than futures, which obliges you to close a position regardless of profit or loss.
The notional value of the 18,000 BTC contracts and 217,000 ETH contracts expiring soon is $530 million and $400 million, respectively. We are looking into whether expiration can provoke increased volatility in the market and affect the price of the two largest cryptocurrencies by capitalization.
Traders took a wait-and-see attitude
According to Greeks.live, the BTC put/call ratio is holding at 0.38.
The maximum pain point is at $29,500. This is the price at which the asset will bring financial loss to the largest number of holders.
The put/call ratio in Ethereum options is 0.69 and the maximum pain point is $1850.
Greeks.live analysts note that the period of extremely low volatility may soon come to an end:
“Low volatility has been holding for 6 weeks now, with long-term implied volatility in an almost one-sided downtrend since March. This keeps expiration prices near the maximum pain point for a long period of time. However, this week the whales began a rare and massive positional move that took over half of the market's trading volume in the current depressed market environment,” they commented.
What will happen to the price of BTC and ETH amid the expiration of options
The bullish momentum that took bitcoin to a new yearly high has all but faded away. This week, BTC made another attempt to get close to the $30,000 mark, but the selling pressure turned out to be too strong: since then, the main cryptocurrency has been trading in the $29,000-$29,500 range.
Ethereum, in turn, was unable to overcome the $1,900 mark - at the time of writing, the asset price is $1,836.
It is quite difficult to predict how the market will behave on the expiration day of a large number of contracts. Especially if any events that affect the news background are added to it. However, traders should keep a close eye on the situation so that increased volatility does not lead to undesirable stop-loss orders or incorrect trading decisions.
Do not forget that the impact of options expiration on the price of the underlying asset is short-term. As a rule, the next day the market will return to its usual state, and strong price deviations will be compensated.
