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Over the past two months, open interest on Bitcoin options has remained reasonably stable, although the figure rose 118% to $ 8.4 billion as the price (BTC) hit a new all-time high. The result of the appreciation in the price of Bitcoin and the growing open interest in BTC options has resulted in a historic $ 3.8 billion expiration set for January 29.
To understand the potential impact of such a large expiration, investors need to compare it to volumes seen on spot exchanges. While some data aggregators show more than $ 50 to $ 100 billion in daily Bitcoin volume, a 2019 report by Bitwise Asset Management found that many exchanges use a variety of questionable techniques to inflate trading volumes.
Therefore, when analyzing trade volume, it is better to source the figure from trusted data aggregators instead of relying on data provided by larger exchanges.
As the data above shows, BTC spot volume on exchanges averaged $ 12 billion over the past 30 days, an increase of 215% from the previous month. This means that the next $ 3.8 billion expiration translates to 35% of the daily average BTC spot volume.
45% of all Bitcoin options expire on January 29
Exchanges offer monthly maturities, although some also offer weekly options for short-term contracts. December 25, 2020 saw the largest expiration on record, with $ 2.4 billion in options contracts expired. This figure represents 31% of all open interest and shows how options are typically distributed throughout the year.
Data from Genesis Volatility shows that Deribit’s expiration schedule for January 29 contains 94,060 BTC. This unusual concentration results in 45% of its contracts expiring in twelve days. A similar effect applies to other exchanges, although Deribit has an overall market share of 85%.
It should be noted that not all options will trade on expiration as some of those strikes now seem unreasonable, especially with less than two weeks left.
Bullish calls of $ 46,000 or more are now considered worthless and the same is true of bearish puts less than $ 28,000, as 68% of them are now worthless. This means that only 39% of the $ 3.8 billion that will expire on January 29 is worth exploring.
Open Interest Analysis provides data on past trades while the Bias Indicator monitors options in real time. This gauge is all the more relevant given that BTC was trading below $ 25,000 just thirty days ago. Therefore, open interest near this level does not indicate a decline.
Market makers don’t want to take upside risk
When analyzing options, the delta tilt of 30% to 20% is the most relevant gauge. This indicator compares the buy (buy) and sell (sell) options side by side.
An asymmetric delta of 10% indicates that calls are trading at a premium over more bearish / neutral puts. On the other hand, a negative bias results in a higher cost of downside protection and is a signal that traders are bearish.
According to the data above, the last time a bearish sentiment appeared was on January 10 when the price of Bitcoin collapsed by 15%. This was followed by a period of extreme optimism when the 30% to 20% delta surpassed 30%.
Whenever this indicator exceeds 20, it reflects the fear of a possible rise in prices on the part of market makers and professionals and, therefore, is considered bullish.
While the expiration of the $ 3.8 billion options is tingling, almost 60% of the options are already considered worthless. As for the remaining open interest, the bulls are mostly in control as the recent price rise to a new all-time high has erased most of the bearish options. As the expiration draws closer, an increasing number of put options will lose their value if BTC stays above the $ 30,000 to $ 32,000 range.
The views and opinions expressed herein are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You need to do your own research when making a decision.
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