Over the past two months, open contracts on Bitcoin options have remained reasonably stable, even with the 118% increase to reach $ 8.4 billion, with the price (BTC) rising to a new historical record. The result of the Bitcoin price appreciation and the increase in open interest on BTC options resulted in a historical maturity of $ 3.8 billion set for January 29.
To understand the potential impact of such a large expiration, investors must compare it to the volumes seen on the 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 employ a variety of questionable techniques to inflate trading volumes.
That is why, when analyzing the volume of exchange, it is better to obtain the value of reliable data aggregators rather than relying on the data provided by the largest exchanges.
As the data above indicates, the spot volume of BTC on the stock exchanges averaged US $ 12 billion in the last 30 days, an increase of 215% over the previous month. This means that the next maturity of $ 3.8 billion translates into 35% of BTC’s average daily volume in cash.
45% of all Bitcoin options expire on January 29
The exchanges offer monthly maturities, although some also maintain weekly options for short-term contracts. December 25, 2020 had the highest maturity ever recorded, with maturity of US $ 2.4 billion in options contracts. This number represented 31% of all open positions and shows how the options tend to be distributed throughout the year.
Genesis Volatility data shows that Deribit’s expiration calendar for January 29 contains 94,060 BTC. This atypical concentration translates into 45% of its contracts with maturity in twelve days. A similar effect occurs on the remaining exchanges, although Deribit has an overall market share of 85%.
It is important to note that not all options will be traded at maturity, as some of these strikes now seem irrational, especially considering that they are less than two weeks away.
The call options of $ 46,000 and above are now considered useless and so have the low put options below $ 28,000, as 68% of them are now effectively useless. This means that only 39% of the $ 3.8 billion expected to expire on January 29 is worth exploring.
The analysis of open contracts provides data on trades that have already been approved, while the slope indicator monitors options in real time. This indicator is even more relevant because BTC was trading below $ 25,000 just thirty days ago. Therefore, the number of open interest close to this level does not indicate a low.
Market makers are not willing to take positive risks
When analyzing options, the 30% to 20% delta slope is the most relevant indicator. This indicator compares buy (buy) and sell (sell) options side by side.
A delta slope of 10% indicates that call options are being traded at a premium over lower / neutral put options. On the other hand, a negative slope translates into a higher cost of protection on the negative side and is a sign that traders are easing.
According to the data shown above, the last time any bearish sentiment emerged was on January 10, when Bitcoin’s price plummeted 15%. This was followed by a period of extreme optimism when the 30% -20% delta slope passed 30.
Whenever this indicator exceeds 20, it reflects the fear of potential high prices on the part of market makers and professionals and, as a result, is considered optimistic.
Although the $ 3.8 billion option maturity is chilling, almost 60% of the options are already considered useless. As for the remaining open interest contracts, the bulls are mainly in control because the recent price hike to a new all-time high has obliterated most downside options. With maturity approaching, an increasing number of put options will lose their value if the BTC remains above the $ 30,000 to $ 32,000 range.
The views and opinions expressed here are exclusively those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You must conduct your own research when making a decision.