$14 Billion Bitcoin Options Expiry Scheduled for Friday on Deribit
A significant options expiry is scheduled to impact the leveraged market. Options are contracts allowing buyers to purchase or sell an asset at a predetermined price later. A call option grants the right to buy, while a put option grants the right to sell.
On Friday at 8:00 UTC, 146,000 bitcoin options contracts, valued at nearly $14 billion and sized at one BTC each, will expire on the crypto exchange Deribit. This represents 44% of total open interest for all BTC options across different maturities, marking Deribit's largest expiry event. Additionally, ETH options worth $3.84 billion will also expire, with ETH having dropped nearly 12% to $3,400 since the Federal Reserve meeting. Deribit accounts for over 80% of the global crypto options market.
Significant OI to Expire ITM
As of now, approximately $4 billion worth of BTC options, representing 28% of the total open interest of $14 billion, are set to expire "in the money (ITM)," potentially generating profits for buyers. These positions may be squared off or rolled over to the next expiry, possibly resulting in increased market volatility. Simranjeet Singh, a portfolio manager at GSR, suggested that much of the open interest in BTC and ETH may roll into January and March expiries as liquidity anchors for the new year.
The put-call open interest ratio for this expiry stands at 0.69, indicating seven puts open for every ten calls outstanding. A higher open interest in calls suggests leverage is skewed to the upside. However, BTC's bullish momentum has waned since last Wednesday’s Fed decision, where Chairman Jerome Powell indicated no potential purchases of cryptocurrency and fewer rate cuts for 2025. BTC has dropped over 10% to $95,000, according to CoinDesk indices.
Traders with leveraged bullish bets face risks of magnified losses. If they exit their positions, it could lead to further volatility. Luuk Strijers, CEO of Deribit, noted that the stalled bullish momentum increases the risk of a rapid snowball effect during significant downside movements. He emphasized the importance of this expiry in shaping market narratives heading into the new year.
Directional Uncertainty Lingers
Key metrics indicate uncertainty regarding potential price movements as the record expiry approaches. Strijers stated that the anticipated annual expiry concludes a remarkable year for bulls, yet directional uncertainty persists, highlighted by heightened volatility of volatility (vol-of-vol). Vol-of-vol measures fluctuations in the volatility of an asset; high vol-of-vol indicates increased sensitivity to news and economic data, leading to rapid price changes and aggressive position adjustments.
Market More Bearish on ETH
Current pricing of options due for expiry shows a more bearish outlook for ETH compared to BTC. Andrew Melville, a research analyst at Block Scholes, observed that BTC’s volatility smile remains stable, while ETH's implied volatility for calls has significantly dropped, indicating decreased demand for bullish bets. This trend is also reflected in the options skew, which shows investors favoring puts over calls for ETH.
Melville noted that after more than a week of poor performance, ETH’s put-call skew ratio is strongly bearish at 2.06% in favor of puts, compared to a neutral 1.64% for BTC. Overall, end-of-year positioning reveals a moderately less bullish sentiment than earlier in December, especially for ETH compared to BTC.