Data Shows Bitcoin Traders Neutral View Ahead of $750M BTC Options Expiration on Friday

Bitcoin (BTC) has bounced 11% from the $39,650 low reached on Jan 10 and currently the price is struggling with the $44,000 level. There are multiple explanations for the recent weakness, but none of them seem sufficient to justify the 42% correction that took place from the Nov 10 all-time high of $69,000.

At the time (November 12), negative comments were issued from the United States Securities and Exchange Commission (SEC) on the rejection of VanEck’s physical Bitcoin exchange-traded fund (ETF). The regulator cited the inability to prevent market manipulation due to unregulated exchanges and the large trading volume based on the Tether stablecoin (USDT).

Then, on December 17, the US Financial Stability Oversight Board recommended that state and federal regulators review the regulations and tools that could be applied to digital assets. On Jan. 5, BTC price corrected again following the Federal Reserve’s December FOMC session, which confirmed plans to ease debt purchases and likely raise interest rates.

As for the derivatives markets, if the price of Bitcoin trades below $42,000 at expiry on Jan 14, the bears will have a net profit of $75 million on their BTC options.

Aggregate Bitcoin Options Open Interest for Jan 14. Source: Coinglass

At first glance, the $455 million call options are dwarfing the 295 million put options, but the 1.56 call to put ratio is misleading because the 14% price drop in the last three weeks will probably eliminate most of the bullish bets.

If the price of Bitcoin stays below $44,000 at 8:00 a.m. UTC on Jan 14, only $44 million of those call options will be available at expiration. There is no value in the right to buy Bitcoin at $44,000 if BTC is trading below that price.

The bears could pocket a $75 million profit if BTC goes below $42,000

Here are the four most likely scenarios for the $750 million options expiry on January 14. The imbalance favoring each side represents the theoretical profit. In practice, depending on the expiry price, the number of buy and sell contracts that are triggered varies:

  • Between $40,000 and $43,000: 480 call options vs. 2,220 put options. The net result is USD 75 million in favor of the selling instruments (bearish).
  • Between $43,000 and $44,000: 1,390 call options vs. 1,130 put options. The net result is balanced between call and put options.
  • Between $44,000 and $46,000: 1,760 call options vs. 660 put options. The net result is USD 50 million in favor of the buying instruments (bullish).
  • Between $46,000 and $47,000: 1,220 call options vs. 520 put options. The net result is USD 125 million in favor of the purchase instruments (bullish).

This crude estimate considers put options to be used on neutral to bearish bets and call options exclusively on bullish trades. However, this oversimplification does not take into account more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin (BTC) above a specific price. But unfortunately, there is no easy way to estimate this effect.

The bulls need $46,000 for a decent win

The only way the bulls can book a significant profit on the Jan 14 expiry is by holding Bitcoin price above $46,000. However, if the current short-term negative sentiment prevails, the bears could easily push the price down 4% from the current $43,800 and earn up to $75 million if Bitcoin price sustains below $100. 42,000.

Options markets currently appear balanced, giving bulls and bears equal odds for Friday’s expiry.

The views and opinions expressed herein are solely those of the Author and do not necessarily reflect the views of Every investment and trading move involves risk, you should do your own research when making a decision.

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Data Shows Bitcoin Traders Neutral View Ahead of $750M BTC Options Expiration on Friday

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