Bittime - The approaching expiry of Bitcoin (BTC) and Ether (ETH) options contracts worth several billion dollars could result in bullish price volatility, according to crypto observers.
On Friday at 08:00 UTC, Deribit, the world's largest cryptocurrency options exchange, will settle quarterly contracts worth $15.2 billion. Of that amount, Bitcoin options accounted for $9.5 billion or 62%, while Ether options accounted for the rest.
The Biggest Expiration Impact in History
This $15 billion expiry is one of the largest in exchange history, and will wipe out 40% and 43% of Bitcoin and Ether's total nominal open interest across expiry.
Nominal open interest refers to the dollar value of the number of active contracts at a given time. At Deribit, one options contract represents one BTC and one ETH. This exchange accounts for more than 85% of the global crypto options market.
According to Luuk Strijers, chief commercial officer at Deribit, a large number of options will expire in in-the-money (ITM) conditions, which can increase market stress or volatility.
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ITM Call Options
An ITM call option gives the buyer the right to buy the underlying asset at a strike price lower than the current market price, while an ITM put option gives the right to sell at a strike price higher than the current market price.
In the current context, $3.9 billion worth of Bitcoin options and $5.7 billion worth of Ether options will expire under ITM conditions. This high ITM expiration rate can create bullish pressure or volatility in the underlying price, according to Strijers.
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The maximum pain points for BTC and ETH quarterly expirations are $50,000 and $2,600. At this point, the option buyer will experience the maximum loss. A similar dynamic has occurred during recent bull markets, where Bitcoin and Ether prices tended to undergo corrections before continuing to rally after expiry.
David Brickell, head of international distribution at crypto platform FRNT Financial, noted that hedging activity from dealers or market makers can also increase volatility. Market makers, in short gamma positions or holding short option positions, hedge to keep their net exposure neutral to price movements.
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DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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