$1.9 billion in BTC options are set to expire on February 24, and bulls are well positioned to take profits despite the Federal Reserve’s intention to cool the US economy.
In February, a 16% price increase between February 13-16 effectively ended the bears’ hopes for a monthly option expiration below $21,500. As a result of the sudden rise, these bearish bets are unlikely to pay off, especially since they expire on February 24th. However, on February 21. The bulls didn’t count on a strong price rejection at $25,200 a day, and that reduced their price. chances. With a profit of $480 million at the end of this month’s BTC options.
The main concern of Bitcoin investors is tighter monetary policy, with the US Federal Reserve raising interest rates and shrinking its $8 trillion balance sheet. The February 22 minutes of the last meeting of the Federal Open Market Committee showed that members were unanimous in the latest rate hike of 25 basis points and that the Fed is ready to raise interest rates as long as necessary.
St. Louis Fed President James Bullard told CNBC on February 22 that more aggressive rate hikes would give them a better chance of curbing inflation. Bullard said:
“Let’s be sharp now, we will get inflation under control by 2023.”
If confirmed, higher interest rate momentum would be negative for risk assets, including Bitcoin, as it provides more leverage for fixed income investments.
Even if the news flow remains negative, the bulls could take as much as $480 million in profit at the expiration of the monthly options on Friday. However, the bears can still significantly improve their position by pushing BTC price below $23,000.
Bears did not expect Bitcoin to hold $22,000
Open interest for the February 24 monthly options expiration is $1.91 billion, but the actual number will be lower as the bears expect the price to be below $23,000. However, these traders were surprised as Bitcoin rose 13.5% between February 15th and February 16th.
The ratio of 1.55 calls to puts reflects the imbalance between $1.16 billion in open interest (buy) and $750 million in put options (sell). If the price of Bitcoin remains close to $24,000 at 8:00 AM UTC on February 24, only $125 million of these put options will be available. This difference occurs because the right to sell Bitcoin at $22,000 or $23,000 is worthless if BTC trades above this level at expiration.
The bulls have a target of $23,000 for a profit of $155 million
Below are four possible scenarios based on the current price action. The number of options contracts available on February 17 for call (bull) and put (bear) instruments varies by expiration price. A positive imbalance on each side results in the theoretical profit:
Between $22,500 and $23,000: 12,500 calls versus 10,700 points. The net result favors calling devices (Bul) by $40 million.
Between $23,000 and $24,000: 16,200 calls versus 7,600 points. The net effect favors calling devices (Bul) by $200 million.
Between $24,000 and $24,500: 21,100 calls versus 5,200 points. The Bulls increase their lead to $385 million.
Between $24,500 and $25,000: 23,200 calls versus 3,600 points. Bulls rule with $480 million in earnings.
This crude estimate refers to call options used in bullish bets and put options in neutral-to-bearish trades only. However, this oversimplification ignores more complex investment strategies.
For example, a trader could sell a call option and gain inverse exposure to Bitcoin more effectively than a certain price, but unfortunately there is no easy way to predict this outcome.
The Fed’s tightening policy is the bears’ best shot
Bitcoin bulls need to push the price above $24,500 on February 24 for a potential profit of $480 million. On the other hand, the best-case scenario for the bears would require a 3.5% price drop below $23,000 to cut their losses.
Given the negative pressure from the Fed’s desire to weaken the economy and curb inflation, the bears have a good chance of improving their position and taking a loss of $40 million on February 24th. This move may not succeed, but it is only for bears. Way to get out of losing millions when BTC monthly options expire.
Given the broader time frame, investors still believe the Fed is set to change its current monetary policy in late 2023 — perhaps paving the way for a sustained hike before crossing the Bitcoin block reward in April 2024.