A large number of Bitcoin futures contracts are expiring today. Will this have a significant impact on the market?
Bitcoin options expire
This week sees significant changes in the world of Bitcoin options. This is because 29,000 option contracts will expire. These contracts have a combined value of $780 million.
Within the trading world, one particular level, the so-called ‘pain point’, is of particular note, which is set at $27,500 for this series of contracts. This is the price level at which the most monetary value is lost when the options expire. If the Bitcoin price hits this level, it means the largest number of options contracts become worthless, a scenario known as being “out of money.” In fact, the holders of these contracts will suffer the most financial loss when this level is reached.
Tracking the ‘pain point’ is crucial for traders, as it potentially indicates the direction the market could move to render the maximum number of expired option contracts worthless.
What are Bitcoin Options?
Bitcoin options are special contracts that give traders the chance to make money from the Bitcoin price without having to own any Bitcoins themselves. These options, also known as derivatives, make it possible to buy or sell a Bitcoin contract at a certain price (the so-called ‘strike price’) on a specific expiration date. These types of contracts offer more flexibility than futures, for example, because they do not have a fixed expiration date.
Maximum pain point
There is an important concept in the world of options trading called “maximum pain point.” This is the price at which most open contracts will incur a loss when the contract expires. For this group of Bitcoin options, that’s $27,500.
In this context, the put/call ratio is also an important factor. This value is determined by dividing the number of traded short contracts (puts) by the number of long contracts (calls). For this group of Bitcoin options, this value is 0.81. A number below 1 is considered a good sign, as it means there are more traders who expect the price to rise (long) than it will fall (short).
Ethereum options also expire
At the moment there are 308,044 Bitcoin options contracts that have not yet been executed. This is the total of the contracts that are still open and have to be settled.
In addition, there are about 169,000 Ethereum options that are about to expire. These contracts have a total value of $310 million and the critical price point, or “pain point,” for these contracts is $1,800. The ratio of short to long contracts (the put/call ratio) for these Ethereum options is 0.96, which indicates less of an increase in price than Bitcoin options.
GreeksLive, a financial analysis company, has provided an assessment of the situation. According to them, positions have generally remained fairly stable, but they see that more and more short positions are being taken. This means that traders who expect the price to fall, or ‘bearish’ traders, are becoming more and more active. This change comes after a period in which prices barely moved.
Given these developments, it remains interesting to keep an eye on the crypto market. As traders anticipate the expiration of options contracts, the movements in the market will continue to create exciting times for both Bitcoin and Ethereum. In addition, it will be interesting to see how the increased activity of bearish traders will affect prices. Despite the recent decline, Bitcoin remains a major player in the digital economy. It remains a time of uncertainty and opportunity, and as always it is crucial for investors to stay informed and make careful decisions.