Over the past two months, open interest on Bitcoin options has remained fairly stable, even as the figure increased by 118% to $ 8.4 billion as (BTC), the price rose to a new record. The result of Bitcoin’s price hike and rising open interest on BTC options has resulted in a historic $ 3.8 billion expiration date on January 29.
To understand the potential impact of such a large expiration, investors need to compare it to the volumes seen on spot exchanges. While some data aggregators display more than $ 50 billion to $ 100 billion in daily Bitcoin volume, a 2019 report from Bitwise Asset Management found that many exchanges are using a variety of questionable techniques to ramp up trading volumes.
This is why when analyzing the exchange volume, it is better to source the numbers from trusted data collectors rather than rely on the data provided by the largest exchanges.
As the above data indicates, BTC spot volume on exchanges averaged $ 12 billion over the past 30 days, up 215% from the previous month. This means that the upcoming $ 3.8 billion expiration date translates to 35% of BTC’s daily average spot volume.
45% of all Bitcoin options will expire on January 29
Scholarships offer monthly expiry, although some have weekly options for short-term contracts as well. December 25, 2020 had the largest expiration date ever as $ 2.4 billion in options contracts expired. This figure represented 31% of all outstanding interest and shows how options are typically spread over the year.
Data from Genesis Volatility shows that Deribit’s maturity calendar for January 29 contains 94,060 BTC. That unusual concentration translates to 45% of contracts that expire within 12 days. A similar effect applies to the other exchanges, although Deribit has a total market share of 85%.
It’s worth noting that not every option trades on the expiration date, as some of those strikes now sound unreasonable, especially considering that there are less than two weeks left.
The bullish $ 46,000 call options and above are now considered worthless and the same has happened with the bearish put options below $ 28,000 as 68% of them are now effectively worthless. This means that only 39% of the $ 3.8 billion due January 29 is worth exploring.
Analyzing outstanding interest provides data on transactions that have already passed, while the skew indicator monitors options in real time. This gauge is even more relevant as BTC traded below $ 25,000 just thirty days ago. Therefore, open interest rates near that level do not indicate bearishness.
Market makers are unwilling to take upside risks
When analyzing options, the delta skew of 30% to 20% is the most relevant indicator. This indicator compares call (buy) and put (sell) options side by side.
A delta skew of 10% indicates that call options are trading at a premium over the more bearish / neutral put options. On the other hand, a negative skew translates into a higher cost of downside protection and is a sign that traders are bearish.
According to the data shown above, the last time bearish sentiment surfaced was on January 10, when the Bitcoin price crashed by 15%. This was followed by a period of extreme optimism when the 30% -20% delta skew exceeded 30.
Whenever this indicator crosses 20, it reflects fears of potential price increases from market makers and professionals, and is therefore considered bullish.
While options worth $ 3.8 billion are nervous about expiring, nearly 60% of options are already considered worthless. In terms of remaining interest outstanding, bulls are mainly in control as the recent price hike to a new record erased most bearish options. As the expiration date approaches, a growing number of put options will lose value if BTC remains above the $ 30,000 to $ 32,000 range.
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