The second largest Bitcoin (BTC) and Ethereum (ETH) options expiration of 2023 will occur this week. Let’s figure out how this will affect the price of underlying assets.
Cryptocurrency options are derivative contracts that allow traders to buy or sell an asset at a specific price on a specific expiration date. If the option owner decides not to buy or sell cryptocurrency, he is not obligated to do so. This feature makes options a more flexible instrument than futures, which require you to close a position regardless of profit or loss.
The notional value of 117,000 contracts for BTC and 1.17 million contracts for ETH expiring in a couple of days is almost $5 billion. We are looking into whether expiration can provoke increased volatility in the market and affect the price of the two largest cryptocurrencies by capitalization.
The maximum pain point is near the current price
According to Deribit data, the BTC put to call ratio remains at 0.59. The maximum pain point is at $26,500. This is the price at which the asset will cause financial losses to the largest number of holders.
The Ethereum options put/call ratio is 0.41 and the maximum pain point is $1,650.
Interestingly, the maximum pain point for both assets is close to the current price. Bitcoin is currently trading at $26,250 and Ethereum at $1,590.
What will happen to the price of BTC and ETH against the background of options expiration?
Friday expiration can be particularly significant because it falls at the end of the month, quarter and fiscal year in the US.
However, Deribit commercial director Luuk Striers believes that traders’ concerns about it are greatly exaggerated.
The effect of expiration depends on open interest and how it compares to the market price of the underlying asset, Stiers said. The closer the maximum pain point is to current quotes, the higher the impact of the event. But the current state of the market, as well as the uneven impact of the gamma index, indicate that there will be no significant disruption to the market.
However, traders need to closely monitor the situation to ensure that possible increased volatility does not lead to unwanted stop loss orders being triggered or poor trading decisions being made.
We should not forget that the impact of option expiration on the price of the underlying asset is short-term in nature. As a rule, the very next day the market will return to its normal state, and strong price deviations will be compensated.
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