About $11 billion in Bitcoin options expire on Friday on Deribit, a crypto options exchange, with Bitcoin trading near $81,000, a day after the Federal Reserve held interest rates steady, even as two of its policymakers voted for a hike.
Even people who never trade options have a stake in this, because traders who sold these contracts need to buy or sell real Bitcoin to hedge as the price moves, which can amplify swings with no news behind them.
An option is a contract that gives its holder the right, but not the obligation, to buy (a call) or sell (a put) Bitcoin at a fixed price, called the strike, by a set date. Friday's batch covers about 135,000 Bitcoin in contracts, roughly 88,700 calls and 46,500 puts, according to Deribit data.
That amounts to about a third of all open Bitcoin options on the exchange and roughly 70% more than the $6.4 billion that expired in August. The put-to-call ratio, which compares bearish bets against bullish ones, stands at 0.52, meaning calls outnumber puts by nearly two to one, pointing to optimism about further price gains.
The $11 billion figure is notional value, the face value of the contracts at today's price, not money actually changing hands. About 86% of the contracts are out of the money, meaning they would be worthless at current prices, and settlement at today's level would move roughly $130 million, about 1% of the total value.
Traders watch Bitcoin options expiry days as one of the key events for their fundamental analysis. Another catalyst to factor in is Federal Reserve rate policy. The Fed held rates steady yesterday at 3.75% to 4.00%, with expectations for another hike this year rising. Interest rates ripple through the whole economy, since investing in risk assets and businesses becomes less attractive than lending money to the government through Treasury bonds.
Traders also watch "max pain", the price at which most contracts expire worthless and sellers pay out the least. Deribit's open interest puts that level at $78,000, about $3,500 below the market, though this describes positioning rather than predicting where Bitcoin will settle. After all, this is crypto, and wild swings are not an unusual occurrence.
The largest call bets sit at $95,000 and $100,000, about 16% and 23% above the current price, while the biggest cluster of puts sits at $70,000, about 14% below. Friday's expiry also recorded the highest trading volume of any Bitcoin options expiry on Deribit in the past 24 hours, with more than 6,000 contracts changing hands.
Friday's batch is smaller than the $15 billion expiry in March, but about three times larger than the $3.6 billion expiry of April 2021.
The next test is 25 December, when about 135,500 Bitcoin in options are already set to expire, roughly the same size as Friday's batch and about two weeks after the Fed meets on 8-9 December.
* Translated and edited with permission from Decrypt.
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