Analysis: If the April closing price reaches 60,000 US dollars, the expiration of 3.9 billion US dollars Bitcoin options will be “unsurprising.”
Bitcoin’s performance in 2021 has been eye-catching, but traders waiting for the monthly closing price to break the record may be disappointed this week.
On April 14, the price of Bitcoin reached a peak of $64,900, followed by a 27% correction, which caused the price of Bitcoin to fall to $46,000.
This downward trend quickly liquidated more than $9 billion in long bitcoin futures contracts, which was unimaginable by most investors before.
Although the price of Bitcoin has rebounded to $56,000 in the past 48 hours, in the options market, the bulls cannot surprise the bears because the two sides are basically in equilibrium before expiration on April 30.
Just three months ago, the total open position of bitcoin futures was 11 billion U.S. dollars, but on April 13, it set a record of 27.7 billion U.S. dollars. Nonetheless, this shows how huge the impact of the recent price correction is.
At the same time, the options market operates in a different way because the contract buyer pays in advance. Therefore, there is no risk of forced liquidation by the holder. Call (buy) options provide buyers with upward price protection, while put options do the opposite.
Therefore, investors seeking neutral and put strategies will mainly rely on put options. On the other hand, call options are more commonly used by bullish traders.
Although some exchanges offer periodic rights contracts, the trading volume of monthly options contracts is usually larger. April is no exception, with 72,000 Bitcoin options contracts worth $3.9 billion expiring.
Please note that compared to May or September, the dominance of options in April is more obvious. Although neutral to bullish call options were dominant on April 30, with 41% more open positions in call options than put options, interpreting these data requires more detailed analysis.
It is worth noting that not all options will be traded on the expiry date, as some of the option strike prices now sound unreasonable, especially considering that there are less than two days left.
Extreme call options are worthless now
In order to understand how these competitive forces are balanced, we should compare the scale of call options and put options at each expiration price (strike price).
Although these $80,000 to $120,000 call options may seem unlikely, they are often used in “horizontal spread” strategies. As previously explained by Cointelegraph, even if Bitcoin transactions are much lower than these strike prices, buyers may still make a profit.
These extremely call options are now practically worthless, because there is no benefit in obtaining the right to Bitcoin for $80,000 when it expires on April 30. The same situation applies to neutral to put put options of $48,000 or less.
Therefore, it is best to evaluate traders’ positions by excluding these unrealistic strike prices.
$54,500 presents a balanced situation
Neutral to bullish call options of $58,000 and below have 9,950 bitcoins. At the current Bitcoin price, this is equivalent to an open interest of $540 million.
On the other hand, the more bearish put options of $51,000 and below total 12,000 bitcoins, and these open positions are currently worth $650 million.
If the price of Bitcoin falls below $50,000, another 3850 Bitcoin put options will also be exercised. This number represents $700 million in open options.
At present, both call options and put options seem to be basically balanced. Considering that the difference between the US$100 million and US$150 million between the two may not be enough to motivate both parties to put pressure on the price, the contract that expires this month may be “quiet and nothing.”
Futures and options of Deribit, OKEx and Bit.com will expire at 8 am UTC on April 30th. Futures and options on the Chicago Mercantile Exchange expire at 3 pm UTC.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.