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 69,179 BTC contracts and 908,754 ETH contracts is $4.7 billion and $3.4 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.
Options traders overestimated the strength of the bulls
According to Deribit, the put to call ratio on BTC remains at 0.61. This means traders are still bullish and the number of calls, or long contracts, is outnumbering the number of puts, or short contracts. The maximum pain point – that is, the price at which the asset will cause financial losses to the largest number of holders – is at $66 thousand.
However, given the failure of the bulls to break above the $70,000 resistance, traders' optimism may be excessive. 91% of contracts were placed at $72,000 or above, meaning holders were expecting a sustained rally.
The put/call ratio on Ethereum, meanwhile, amounts to 0.85, and the maximum pain point is at $3,300.
What will happen to the BTC price during expiration?
The price of Bitcoin briefly rose above $70,000 this week amid renewed inflows into spot ETFs. However, the asset was unable to hold its position and open the way for a new rally. At the time of writing, BTC is trading at $68,300, up 0.6% over the past 24 hours.
The dynamics of Ethereum are also not very expressive: despite the long-awaited approval of eight spot ETFs on ETH, the second largest cryptocurrency by capitalization still cannot return to $4,000.
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 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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