Over the past two months, open interest in bitcoin options has increased by 60% to $ 13.5 billion BTC the price has risen to a new all-time high. The result of the appreciation of the bitcoin price and the growing open interest in options resulted in a potentially historical expiration of $ 6.1 billion set for March 26.
Most exchanges offer monthly exposures, although a few also have weekly options for short-term contracts. On January 29, 2020, the largest period of validity expired because of $ 3.5 billion in option contracts. This figure represented 36% of all open interest at the time.
The above data show that the March 26 bitcoin expiration holds 100,400 BTC. This unusual concentration is reflected in 45% of its contracts, which expire in eleven days.
It is worth noting that not every option will be traded after the expiry date, as some of these strikes now sound disproportionate, especially given that there are less than two weeks left.
Unlike futures contracts, options are divided into two segments. Call (purchase) options allow the buyer to obtain a BTC at a fixed price on the expiration date. Generally speaking, these are used either in neutral arbitration trades or in bullish strategies.
Meanwhile, put options are commonly used as hedging or protection against negative price fluctuations.
The call-to-put ratio is unbalanced
To understand how these competitive forces are balanced, it is necessary to compare calls and option sizes at each expiration price (strike). Option markets are all-or-none, meaning that they either have value or become worthless if traded above the call strike price, or vice versa with put option holders.
By excluding neutral to bearish put options below $ 47,000 and call options above $ 66,000, it is easier to estimate the potential impact of Friday’s expiration. Incentives to draw or dumping prices by more than 17% become less likely because potential gains rarely outweigh the costs.
That data leaves call options worth $ 1.13 billion from $ 32,000 to $ 64,000 strikes on the total expiration of the options on March 26. Meanwhile, the $ 47,000 bear option is $ 462 million. Therefore, there is an imbalance of $ 668 million that favors bullish calling options.
Expiration on March 26 will be much less than $ 6.1 billion
While the expiration of the $ 6.1 billion options could be worrying, almost 43% of them are already considered worthless. As for the remaining open interest, the bulls have control mainly because the recent price increase to the new historical highest price has wiped out 84% of the bear options.
As expiration approaches, a growing number of put options will lose value if BTC remains above $ 52,000, increasing the benefit of neutral to bullish call options.
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