$ 700 million in bitcoin options and $ 340 million in ether options expire today (Oct. 1), and derivatives market data shows bears have the upper hand.
Bitcoin Bulls weak at expiry of $ 700 million options
Bitcoin has been trading on a downward trend since strong rejection at $ 53,000 on Sept. 7 and the liquidation of $ 3.4 billion futures contracts along with the ban on trading. China’s cryptocurrencies appear to have had a major impact on investor sentiment.
To add to the negative sentiment, major exchanges such as Binance and Huobi have suspended some services in mainland China and several major Ethereum mining pools such as Sparkpool and BeePool have had to close completely.
Bitcoin price chart | Source: TradingView
Based on the graph above, it’s understandable why buyers place 80% of their bets at $ 44,000 or more. However, the past two weeks have seen these call options quickly depreciate in value.
On September 25, the People’s Bank of China (PBoC) issued a nationwide ban on cryptocurrencies and banned companies from offering financial transactions and services to market participants. This news, along with a far-reaching altcoin retracement, caused Bitcoin price to drop 8%.
According to the China FUD, Tesla CEO Elon Musk expressed support for crypto at the Code Conference in California.
“I think it’s impossible to destroy crypto, but governments can slow it down.”
Had we been in a neutral to bullish market, these remarks could have reversed the negative trend. For example, on July 21, Elon Musk said that Bitcoin had hit its renewable energy benchmark. As a result, Bitcoin price, which had previously fallen 12% in ten days, rebounded and rose 35% in the following ten days.
Today is going to be a strength test for the bulls as any price below $ 42,000 would mean a carnage with the absolute dominance of put (put options).
Bitcoin Option OI expires October 1st | Source: Bybt.com
Initially, $ 285 million worth of neutral to bullish options dominated the 21% weekly expiration time over $ 320 million put options.
The 1.21 call-to-put ratio is misleading, however, as the bulls’ excessive optimism could ruin most of their bets if Bitcoin price stays below $ 43,000 at 3pm (Synthetic Team time) this afternoon.
66% of the put options where the buyer has the right to sell Bitcoin at a set price were set at $ 42,000 or less. These neutral to bearish instruments would be worthless if Bitcoin were to trade above this price by today’s option expiration.
Here are the four most likely scenarios considering current prices. An imbalance in favor of either party represents a potential gain from the expiration.
- From $ 40,000 to $ 41,000: 110 buy orders vs. 4,470 sell orders. The net result is $ 175 million in favor of put options (bears).
- From $ 41,000 to $ 43,000: 640 buy orders vs. 4,000 sell orders. The net result continues to favor the $ 140 million bears.
- From $ 43,000 to $ 45,000: 1,780 buy orders vs. 2,070 sell orders. The net result is a balance between the bears and the bulls.
- Over $ 45,000: 2,530 buy orders vs. 1,090 sell orders. The net result shifts another $ 65 million in favor of the cops.
This rough estimate looks at calls that are used in bullish and put strategies specifically for neutral to bearish trades. Unfortunately, real life isn’t that simple as more complex investment strategies may be in the works.
For example, a trader could have sold a put, effectively making a positive level for Bitcoin above a certain price. Hence, there is no easy way to gauge this effect, so the simple analysis above is a good guess.
From today’s perspective, the bears have absolute control over today’s option expiration and they have some good reasons to keep pushing the price below $ 43,000.
If there is no unexpected buying pressure before 3pm today, the amount of money the bulls will need to force the market above $ 45,000 seems huge and unbelievable.
The bulls’ only hope is an unexpected influx of positive price news. If sensible action is certain to be taken, it will likely be by the end of the week when bitcoin volumes are lower.
Ethereum bears dominate in $ 340 million expiration options
Ether price has been quite volatile lately and to the surprise of many traders, $ 4,000 remains a tough resistance. Currently the price is following an upward trend that started in August but increases every time the support area is tested the risk of a sharp correction. With that in mind, the $ 340 million option expiring today is likely to be dominated by neutral to bearish put options.
Ether price chart | Source: TradingView
The bulls have placed bigger bets on the expiration date, but it appears they are overly optimistic with their $ 215 million call options approaching the expiration date.
Ether could fall victim to its own success as the demand for DeFi applications and the imprinting of NFTs continue to clog the network. This has resulted in the average gas charge exceeding $ 20 over the past ten days.
The places that used the most gasoline in the last 24 hours | Source: etherscan.io
OpenSea, the largest NFT marketplace, represents over 20% of the gas consumption of the entire Ethereum network in the last 24 hours.
Polygon co-founder Sandeep Nailwal analyzed the incredible demand for blockchain transactions and said it was only a matter of time before Ethereum could overtake Bitcoin as the dominant Layer 1 protocol.
The negative news continues, however, as the fourth largest Ethereum mining pool will shut down its operations in China citing “regulatory guidelines”. In addition, SparkPool, the second largest ether mining pool, will also close this month.
The $ 340 million options expiring today will require the bulls to push the price above $ 3,000 to avoid significant downward pressure.
Ether Option OI expires on October 1st | Source: Bybt.com
As mentioned earlier, the bulls were taken by surprise when the call options were placed at $ 2,900 or higher. Therefore, if Ether stays below this price, only $ 1.4 million will be activated in neutral to bullish call options on expiry.
This means that a $ 3,000 put option will be worthless if Ether stays below that price at 3:00 p.m. today.
A call-to-put ratio of 1.74 represents the difference between a $ 215 million call option and a $ 125 million put option. While it speaks for the bulls, there is a more detailed analysis as some of these bets will be void given the current price level of $ 2,800.
Here are the four most likely scenarios for Ether price. The imbalance in favor of one of the parties represents a theoretical gain from the time of forfeiture.
- From $ 2,400 to $ 2,500: 0 buy orders vs. 38,050 sell orders. Net income was $ 95 million in favor of put (bear) options.
- From USD 2,500 to USD 2,800: 100 buy orders vs. 22,300 sell orders. Net income is $ 60 million in favor of put (bear) options.
- From $ 2,800 to $ 3,000: 2,300 buy orders vs. 13,800 sell orders. The net result was $ 33 million in favor of (bear) put options.
- From $ 3,000 to $ 3,200: 9,600 buy orders vs. 6,700 sell orders. The net result is a balance between the bears and the bulls.
This rough estimate assumes that calls are only used in bullish strategies and put options are used in neutral to bearish trades. However, investors may have used more complex strategies that often involve different expiration dates.
The bears have absolute control over the expiration date of the options today and enough momentum to keep the price below $ 2,800. However, during downtrends, like now with Ether, sellers can cause a negative 2% movement by placing big offers and aggressive sales.
On the flip side, the bulls will have to push Ether price 7% above $ 3,000 to offset the options today at maturity. Not being able to calculate how much a trader will have to spend to propel the market in that direction seems like a daunting task.
If there are no surprises, Ether price will trade below $ 2,800 by the expiration date.
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According to AZCoin News