(Sept 24): Traders seeking clues as to whether the Bitcoin rally is sustainable are turning their attention to one of the must-watch events in the derivatives market: the quarterly expiration of roughly US$15 billion in options contracts.
More than a third of all Bitcoin options open interest, or total contracts, on Deribit that is set to expire on Friday is tied to the Sept 25 expiry. The put-to-call ratio — a closely followed measure of options to sell versus ones to buy — stands at 0.70, indicating there are more bets on higher prices. The largest concentrations of call options are clustered at strike prices of US$85,000, US$90,000 and US$100,000.
At around US$84,000, Bitcoin is trading well above the so-called max pain level of US$76,000 — the price at which the largest number of options would expire worthless. That leaves traders watching whether hedging around the large call positions restrains the market before Friday’s settlement.
Options-market positioning often puts a temporary lid on rallies. Dealers are broadly neutral around current prices, but are positioned in a way that can prompt them to sell as Bitcoin rises towards US$90,000 to US$95,000 in order to keep their hedges balanced, potentially dampening gains until the options expire.
“Hedging activity may therefore be dampening rallies until expiry, and momentum could resume once these options expire or are rolled towards the next quarterly expiry,” said Caroline Mauron, co-founder of Orbit Markets, a digital-asset derivatives liquidity provider.
The options-market turning point comes after a powerful recovery in Bitcoin that began in August, when the US Treasury buyback announcement helped drive most risk assets higher. Bitcoin has gained over 30% since.