Could $580M Worth of Bitcoin Options Expiring Reverse the Market’s Direction?

Key Points:

• 22K BTC options contracts, worth $580M, set to expire.
• BTC spot price is down at $26.5K, contracts at $29.5K max pain.
• Implied volatility surges, tight liquidity seen, and confidence dips.

As Friday marks the expiry day for Bitcoin options, a surge in market volatility has resurfaced following a recent significant market move. The question arises: could the impending expiration of contracts this week alter the downward trajectory observed in both BTC and ETH markets?

Scheduled for August 18th, approximately 22,000 Bitcoin options contracts, collectively valued at $580 million, are set to expire. Interestingly, the open interest, representing the number of contracts yet to mature, closely mirrors the figures from the previous week’s options expiry event.

Regarding the specifics, these contracts are associated with a maximum pain point positioned at $29,500, maintaining the same value as the previous week. However, this value significantly contrasts with the prevailing BTC spot price, which has dipped to $26,500.

The concept of maximum pain denotes the price point hosting the highest number of open contracts and the level at which the majority of losses are anticipated upon the contracts’ expiry.

Furthermore, these options contracts feature a put/call ratio of 0.55, indicating that nearly twice as many call contracts (long positions) are set to expire compared to put contracts (short positions).

Commenting on the current market downturn, Greeks Live highlighted the occurrence of tight liquidity multiple times throughout the week. Traders’ confidence waned significantly following the breach of the $29,000 threshold.

The statement also observed a notable surge in implied volatility (IV) for BTC and ETH’s major term, reaching above 40% of the higher levels recorded in the latter half of the year. However, it is anticipated that once the markets stabilize, IV will undergo a swift decline.

The statement emphasized that the options market’s IV is still within reasonable limits and that short-term purchasing remains cost-effective, whether one opts for short or long positions on BTC.

Implied volatility refers to a measure of the expected future volatility inferred from expiring derivatives contracts.

Coinglass provided insight into the Bitcoin options‘ funding rate, noting that it had dipped below -0.01%, a first since March 12th of the current year. The options funding rate signifies the cost associated with holding an open options position over time, based on the disparity between the spot price and the option’s strike price.

Moving to Ethereum, there are also 144,000 options contracts set to expire on the same day. These Ethereum contracts hold a notional value of $240 million, featuring a maximum pain point of $1,800—well above the current spot price.

Similar to the BTC contracts, the Ethereum contracts exhibit a put/call ratio of 0.51.

Presently, BTC is experiencing a 7.6% decrease in value, trading at $26,449, while Ethereum has undergone a 6.5% drop, falling to $1,680.

As the markets search for a new support zone, a state they have been in for approximately the last six hours, the potential impact of today’s options expiry is limited due to the already transpired mass liquidation.