Fifteen billion in illusion. Around 177,000 BTC of options expire Friday at 10 a.m. (Paris time) on Deribit, the leader in crypto options. Their value is close to $15 billion while bitcoin struggles below $85,000.
You still need to know how to read these figures. But four notions are enough to see clearly.
Bitcoin options: calls, puts and a market that bets on the rise
An option is a contract. A call option gives the right to buy bitcoin at a price fixed in advance, until a given date. But nothing obliges its holder to exercise it. This price is called the exercise price, or strike in the jargon. A put option works in the opposite way and therefore allows you to sell at this price. You buy a call to bet on the rise, a put to hedge against the fall. At maturity, an option that pays something is said to be “in the money”. The others expire worthless.
On Friday's deadline, bullish bets clearly dominate. According to its dashboard, Deribit recorded around 100,800 calls for 76,200 puts this Thursday morning. Each contract involves one bitcoin. The puts/calls ratio (the number of puts divided by that of calls) therefore comes out to 0.76. Under 1, call buyers win. In other words, the lower the ratio, the more the market leans towards the rise. It is also a quarterly deadline, one of the four major dates of the year. It also traditionally weighs heavier.
The $15 billion in Bitcoin options are not leaving the market
This is the most common misunderstanding. These approximately 15 billion dollars in fact represent the notional value of the contracts. It is obtained by multiplying the quantity of bitcoins covered by the current price. No one will take that amount out of the market on Friday morning. Only the winnings from options that end up in the money change hands, a fraction of the total.
The effect on the price is through hedging. Market makers sold a good portion of these options. These professional intermediaries then buy or sell bitcoin to neutralize their risk as the price moves. This is called hedging. For example, when a call seller sees the price rising, he buys bitcoin and thus fuels the rise. At maturity, part of these flows disappears. The mechanical support they provided during the course may evaporate with them.
Max pain at $78,000: the compass that often panics
There remains the famous max pain, literally “maximum pain”. It designates the price at which the greatest number of options would expire worthless. For buyers, this is therefore the most painful level. Deribit is listing it at $78,000 this Thursday morning, approximately $6,000 below the price. The day before, it was still at $76,000, because it moves according to positions. Some traders see it as a magnet. However, its prediction history is poor.
It is better to look at the open interest, that is to say the number of contracts still open. The strike of 70,000 dollars thus brings together the largest position in calls (8,274 BTC). It is also the largest in puts (7,653 BTC). On the calls side, then follow 90,000 dollars (7,222 BTC) and 100,000 dollars (6,950 BTC). On the puts side, the biggest protections are at $60,000 (5,571 BTC). These are followed by those of 75,000 dollars (4,256 BTC). On the graph, the puts (in yellow) are massed under the max pain. Calls (in blue) dominate above the price, except at $70,000 where the two camps face each other.
After the deadline, bitcoin keeps a busy schedule on Friday
Friday does not stop in Deribit. Durable goods orders fall in the afternoon, then consumer sentiment from the University of Michigan. The Fed also raised its rates to 3.75-4% on September 16. Finally, the CME (Chicago Stock Exchange) bitcoin futures contracts are also expiring. They close at 5 p.m. Paris time.
