- Deribit is set to see the expiration of Bitcoin and Ethereum options contracts worth about $4.5 billion and $2.3 billion respectively this Friday.
- Market dynamics are undergoing a significant shift, transitioning from greed to fear, as indicated by an uptick in implied volatility of put options over call options.
The confluence of reduced volatility and impending end-of-quarter options contracts expirations is expected to cause notable fluctuations in the cryptocurrency markets. The recent rally has triggered a reevaluation of positions amongst investors, adding a level of intrigue to the week ahead.
Leading exchange Deribit has approximately 150,000 Bitcoin options contracts valued around $4.5 billion due to expire this Friday. Concurrently, Ether options contracts worth about $2.3 billion are also slated for expiration. At the time of publication, Bitcoin and Ether were valued at $30,701 and $1,896 respectively.
Shaun Fernando, Chief Risk Officer at Deribit, observed,
“BTC Max Pain at a significantly reduced level of $26,000 might alleviate the prevailing downward pressure on prices following the expiration.”
He highlighted an open interest exceeding $350 million at the $30,000 strike and alluded to a thrilling finale brought about by the impending quarterly expiration, with potential price turbulence due to varying gamma hedging strategies.
Analysts concur that the current high level of open interest in cryptocurrency derivatives, which peaked since the FTX incident in late 2022, is crucial. Youwei Yang, Chief Economist at Bit Mining Limited, said,
“When considering implied volatility, the magnitude and slope of the three strong rebounds this year (January, March, and June) have progressively weakened, indicating a lack of greed in the market.”
However, with the second quarter’s end nearing, the volatility curve for the lower end of Bitcoin is tilting upwards, as implied volatility of put options is surpassing that of call options. Yang explains this as a transition from greed to fear, suggesting an escalating market apprehension about a potential decline.
Before this month’s rally, Bitcoin had slipped below $26,000, leading traders to hedge against a rally using options contracts. The unexpected 22% surge since June 14 took short sellers by surprise.
As we approach Friday, when options contracts at Deribit are set to expire, the dynamics are intriguing. Jan Sammut, Vice President of Marketing at Origin Protocol, said,
“Basically, traders have opened a huge amount of calls at greater than $30,000.”
He highlights that market makers and dealers are holding a significant amount of negative, or short, gamma. The unfolding drama is sure to command attention in the cryptocurrency world.
