FOMC meeting-induced volatility weighs on BTC price, but bulls still point to a win at this week’s $640M options expiry.
The last few months have been painful for Bitcoin
Bulls, but they are not alone. The tightening of economic policy by the US Federal Reserve has led investors to seek protection in cash positions and inflation-protected bonds.
Rising inflation and signs of a recession have pushed the S&P 500 stock index down 19% so far this year. Even gold, previously considered a safe-haven asset, is feeling the pinch, trading down 20% from its all-time high.
The rising cost of a home mortgage has added to fears that a housing crisis is looming. Since the Fed began raising interest rates in March, borrowing costs have risen and risen, and mortgage rates have hit multi-decade highs.
Regardless of the prevailing bearish sentiment, Bitcoin bulls still stand to make $270 million at Friday’s options expiry.
$640 million in options expire on November 4
According to the Nov 4 Options Expiration Open Interest, Bitcoin bears concentrated their bets between $16,000 and $20,000. These levels may seem bleak now, but Bitcoin was trading below $19,500 two weeks ago.
Aggregate Bitcoin Options Open Interest for Nov 4 Source: Coinglass
At first glance, the $335 million puts dominate the $305 million calls, but the 0.92 call-to-put ratio doesn’t really tell the whole story. For example, BTC’s 7.5% price rise since Oct. 21 wiped out most bearish bets.
A put option gives the buyer the right to sell BTC at a fixed price at 8:00 am UTC on November 4. However, if the market trades above that price, there is no value in holding that derivative contract, so its value is reduced to zero.
Therefore, if Bitcoin remains above $20,000 at 8:00 a.m. m. UTC on November 4, only $30 million of these put options will be available at expiration.
Bulls will have a hard time shipping Bitcoin above $22,000
Here are the four most likely scenarios for options on Friday. The imbalance favoring each side represents the theoretical gain. In other words, depending on the expiry price, the active number of buy (call) and sell (sell) contracts varies:
Between $19,000 and $20,000: 500 calls vs. 5,100 puts. The net result is $90 million in favor of put (bear) instruments.
Between $20,000 and $21,000: 3,300 call options vs. 1,500 put options. The net result favors call instruments (bull) with $40 million.
Between $21,000 and $22,000: 7,500 call options vs. 200 put options. The net result favors the bulls with $155 million.
Between $22,000 and $23,000: 12,200 calls against the Bulls are completely dominant, with earnings of $270 million.
This rough estimate takes into account call options used on bull bets and put options used exclusively on neutral to bear trades. However, this oversimplification ignores more complex investment strategies.
Bears need less than $20,000 to secure a win
A mere 3% price dump from the current $20,500 level is enough for Bitcoin bears to post a $90 million profit at the Nov 4 options expiry. However, these traders experienced a $780 million liquidation in futures contracts between October 24 and 28, meaning they have less room to resist upward pressure from the bulls.
For now, Bitcoin bears will need to overcome short-term negative headwinds brought on by tight macroeconomic conditions to lock in a gain.
Therefore, the options market data slightly favors call options, even if a $270 million gain seems overkill for BTC bulls.