The past few months have been painful for Bitcoin
Bulls, but they are not alone. The tight economic policy of the US Federal Reserve has led investors to seek protection in cash positions and inflation-protected bonds.
Signs of high inflation and a recession have caused the S&P 500 stock market index to fall 19% year-to-date. Even gold – previously considered a safe asset – is suffering the consequences, dropping 20% from its all-time high.
The rising costs of mortgages added to the fear that the housing crisis may be underway. Since the Fed began raising interest rates in March, borrowing costs have soared, and mortgage rates are at multi-decade highs.
Regardless of the prevailing downtrend, Bitcoin bulls can still generate $270 million in profits when the options expire on Friday.
$640 million of options expire November 4
According to the open interest on the November 4 options expiration, the bears on bitcoin focused their bets between $16,000 and $20,000. These levels may look bleak at the moment, but bitcoin was trading below $19,500 two weeks ago.
Bitcoin options collect open interest on november 4th. Source: Coinglass
At first glance, $335 million put (call) options dominate the $305 million call (buy) instrument, but the 0.92 to buy ratio doesn’t tell the whole story. For example, the BTC price pump of 7.5% since October 21 wiped out most of the bearish bets.
The 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 is trading above this price, there is no value in holding this derivative contract, so its value goes to zero.
Therefore, if Bitcoin remains above $20,000 at 8:00 AM UTC on November 4, only $30 million of these put (call) options will be available at expiration.
Bulls Will Fight To Send Bitcoin Over $22,000
Here are the four most likely scenarios for Friday’s options expiration. The imbalance in favor of each side represents the theoretical profit. In other words, depending on the expiration price, the active quantity of the buy (buy) and sell (sell) contracts varies:
Between $19,000 and $20,000: 500 calls for 5,100 puts. The net result is $90 million in favor of bot tools (bear).
Between $20,000 and $21,000: 3,300 calls for 1,500 puts. The net result favors buy-in (bull) instruments by $40 million.
Between $21,000 and $22,000: 7,500 calls for 200 puts. The net result in favor of the bulls is $155 million.
Between $22,000 and $23,000: 12,200 calls for 0 puts. The bulls dominate completely, earning $270 million.
This crude estimate takes into account buying options used in bullish bets and selling options exclusively in neutral to bearish trades. However, this oversimplification overlooks more complex investment strategies.
Bears need less than $20,000 to guarantee victory
Simply offloading a 3% price from the current $20,500 level is enough for the bitcoin bears to lock in a profit of $90 million at the November 4 options expiration. However, these traders underwent a liquidation of $780 million in futures contracts between October 24 and October 28, which means that they may have less margin to subdue the bulls’ bullish pressure.
For now, the bitcoin bears need to catch up to the negative short-term headwinds generated by tighter macroeconomic conditions to secure a win.
Thus, the options market data slightly favors call (buy) options, even though a $270 million profit seems out of reach for BTC bulls.