Record $14 Billion Bitcoin Options Contracts Set to Expire on December 27
Around $14 billion in Bitcoin options contracts will expire on Deribit on December 27, representing 44% of total open interest for Bitcoin options. This is the largest expiry event on the exchange. Ethereum (ETH) options worth $3.84 billion will also expire concurrently.
Options contracts enable traders to speculate on price movements or hedge against losses. The upcoming settlement could result in $4 billion worth of Bitcoin options expiring "in the money" (ITM), potentially benefiting buyers. However, market volatility may arise as traders adjust their positions to mitigate risk.
Analysts predict a shift in open interest towards January 31 and March 28 expiries, which may influence market dynamics in 2024.
Directional Uncertainty
This large expiry event has heightened directional uncertainty in the market. Luuk Strijers, CEO of Deribit, mentioned a potential "snowball effect" if downward pressure persists. The put-call open interest ratio is at 0.69, indicating more bullish bets, yet Bitcoin’s price has significantly declined.
Bitcoin has dropped over 13% after reaching a peak of $108,268 due to the Federal Reserve's hawkish stance on interest rates. Currently, Bitcoin is trading around $93,940, down by 2.2% in the last 24 hours.
Options-based metrics show market hesitancy. The volatility of volatility (vol-of-vol) remains high, suggesting rapid price adjustments and increased volatility, especially for leveraged traders.
Ethereum Faces Bearish Sentiment
Ethereum appears more susceptible than Bitcoin as this expiry approaches. Data from Block Scholes indicates a decline in implied volatility for ETH calls, reflecting lower demand for bullish positions. The put-call skew for ETH favors puts at 2.06%, highlighting a bearish outlook compared to Bitcoin's neutral stance.
Ether has experienced a 15% decline after surpassing a resistance level of $4,000 and is currently trading around $34,000, up by 1.78% in the past day.
Altcoin Rally Ahead?
Some analysts suggest that capital may shift from Bitcoin to altcoins if Bitcoin remains range-bound. Singapore-based QCP Capital noted that altcoins could gain traction following this record expiry, stating, “As BTC continues to struggle below 100k, we could also see alts start to play catch-up again.”