A large number of Bitcoin (BTC) and Ethereum (ETH) options are expiring today. 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 makes options more flexible than futures, which require you to close a position regardless of profit or loss.
The notional value of the soon-expiring 93,600 BTC contracts and 931,610 ETH contracts is $3.4 billion and $2.07 billion, respectively. We are looking into whether expiration can provoke increased volatility in the market and affect the price of the two largest cryptocurrencies by capitalization.
Bears dominate the options market
According to Deribit, the ratio of put and call options on BTC remains at 0.51. This means that twice as many calls or long contracts are traded as puts or short contracts.
Open interest at the $50K strike price remains strong, with 22,719 call contracts at that level. However, in the short term, the trend is down, so put sellers may be in profit: their OI is highest at the $40,000 strike price.
The put/call ratio on Ethereum is 0.31. This means that call sellers are significantly outperforming put sellers, indicating that derivatives traders are bearish on ETH.
What will happen to the price of BTC and ETH during expiration?
This week, the price of Bitcoin dropped below $39 thousand amid active sales by Grayscale. At the time of writing, the main cryptocurrency has partially recovered its losses and is trading at $40 thousand.
Ethereum showed similar dynamics, dropping to $2,180 at the moment.
It is quite difficult to predict how the market will behave on the expiration day of a large number of contracts, especially if any events are added that affect the news background. However, traders need to closely monitor the situation to ensure that increased volatility does not lead to unwanted triggering of stop loss orders or poor trading decisions.
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.
Source: Cryptocurrency
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