Breathtaking $ 3.2 billion Bitcoin options expiration on Friday could spark another rally

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Bitcoin (BTC) is trading on a descending channel pattern from its all-time high of $ 67,000 on October 20, just one day after ProShares Bitcoin Strategy ETF (BITO) debuted on Nasdaq.

However, the bulls have enough incentives to price Bitcoin above $ 60,000 on October 29, when the monthly options expiration of $ 3.2 billion is settled.

Bitcoin price in USD on Coinbase. Source: TradingView

Currently, investors are showing mixed feelings about the approval of the exchange-traded fund, even though it reached $ 1 billion in assets under management in 48 hours. Either market expectations for these funds were incredibly high, or the 42% gain in October through October 19 was previously built into the event.

Regulatory uncertainty in the United States is also a determining factor in preventing some large institutional investors from entering the sector. In an Oct. 26 hearing by the U.S. Senate Committee, Rostin Behnam, acting chairman of the Commodity Futures Trading Commission (CFTC), compared the government’s digital asset space agency’s application to a policeman on duty.

Behnam added:

“The market transactions that are taking place right now represent a huge part of the risk posed by digital assets.”

Bulls expected to make potential profit of $ 715 million

Typically, these remarks would have little or no impact in a bull market, which begs the question whether the 13% correction from the all-time high on October 20 marks the end of a positive cycle. .

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The October 29 monthly expiration will be a test of strength for the bears, as any price above $ 58,000 means a profit of $ 385 million or more for the bulls.

Bitcoin options accumulate open interest for October 29. Source: Bybt

On the face of it, the $ 1.94 billion call (buy) instruments dominate the monthly expiration by 56% compared to the $ 1.24 billion put (put) options.

However, the call-to-put ratio of 1.56 is misleading as the bears were taken by surprise and will have most of their puts wiped out if the price of Bitcoin stays above $ 58,000 at 8:00 UTC on October 29. .

Owning a put option, which is the right to sell Bitcoin at $ 55,000, becomes worthless if the BTC price is trading above that level.

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Bulls are comfortable above $ 58,000

Sixty-eight percent of the put options, which denotes the right to sell Bitcoin at a predetermined price, were placed at $ 58,000 or less.

Below are the four most likely scenarios that take into account current price levels. In addition, the data shows how many contracts will be available on October 20 for both bullish (call) and bearish (put) instruments.

  • Between $ 52,000 and $ 55,000: 6,500 calls against 6,530 put options. The net result is balanced between bulls and bears.
  • Between $ 55,000 and $ 58,000: 9,510 calls against 4,610 put options. The net result favors the bulls by $ 270 million.
  • Between $ 58,000 and $ 60,000: 9,900 calls against 3,490 put options. The net result continues to favor the bulls by $ 385 million.
  • Above $ 60,000: 13,870 calls against 1,970 put options. The net result will benefit the bulls by $ 715 million.

As noted above, the imbalance in favor of either side represents the potential theoretical benefit of the expiration.

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This raw estimate considers call (call) options used in bullish strategies and put (put) options exclusively in neutral to bearish trades. However, a trader could have sold a put option, thereby gaining positive Bitcoin exposure above a specific price. Unfortunately, there is no easy way to estimate this effect.

Can Bears Pin Bitcoin Below $ 55,000?

The bears need a 6% correction from the current price of $ 58,500 to avoid a loss of $ 270 million. While this may not seem like much at first, traders should also consider the bullish momentum brought by ETF approval.

With less than 36 hours to go to the October 29 expiration, the bulls are likely to score a win by holding Bitcoin above $ 59,000. When it comes to bears, the road to less than $ 55,000 seems a long way off, but might be worth it.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of TBEN. Every investment and trade move involves risk. You should do your own research before making a decision.