Analysis: $1.55 billion bitcoin options will expire on Friday, and the market outlook is more bearish

Bitcoin price is slowly recovering after experiencing a 16% sharp correction in the early morning of April 18.

Although some analysts have accused “9,000 BTC transferred to Binance”, others have focused their attention on the decline in Bitcoin’s computing power caused by the coal mine accident in China. Regardless of the reasons behind Bitcoin’s decline to the low of $51,200, options market makers were forced to adjust their exposures.

Under normal circumstances, arbitrage platforms seek non-directional risk exposure, which means that they do not directly bet on Bitcoin moving in any particular direction. However, neutral option exposures usually require dynamic hedging, which means that positions must be adjusted according to the price of Bitcoin.

The risk adjustment of these arbitrage platforms usually involves selling bitcoin when the market is down, so this further increases the pressure on long liquidation. Therefore, as the expiration date of the rights on April 23 approaches, it makes sense to understand the current level of risk. We will try to analyze whether shorts will benefit from a Bitcoin price of $50,000.

Initially seems to be balanced

Prior to the April 18 correction, Bitcoin had gained 74% in three months, setting a record high of $64,900. Therefore, investors will naturally use protective options more.

While neutral to call options provide buyers with upward price protection, the situation is the opposite for more bearish options. By measuring the risk exposure of each price level, the trader can gain insight into the trader’s bullish or bearish position.

The total number of contracts scheduled to expire on April 23 is 27,320 BTC, which is equivalent to $1.55 billion at the current price of $56,500. However, short and long positions are clearly balanced, with call options accounting for 45% of open positions.

After the recent plunge, bears have a considerable advantage

Although the initial situation seems to be balanced, it must be taken into account that the $64,000 call option and higher-priced options have little value, and there are only less than three days left until the expiration date. If we remove these 6,400 bullish contracts that are currently trading below $50, a more bearish situation will emerge.

Neutral to put options accounted for 70% of the remaining 19,930 contracts. Taking into account the current bitcoin price, the open interest is $1.13 billion, which makes put options $450 million more than call options.

Bitcoin has dropped 13% from its all-time high on April 14, which caught the bulls off guard. Bitcoin call options with a price of less than $58,000 have only 3000 BTC, accounting for 24% of the total number of call options.

At the same time, neutral to put options have 9,000 BTC contracts at an exercise price of $55,000 and higher. This difference represents an open interest of $340 million in favor of short positions.

As far as the current situation is concerned, the expiring contract between $57,000 and $64,000 is balanced, which shows that the bears have the incentive to lower prices on April 23.