- The bitcoin options market is bullish ahead of the expiration this Friday.
- The expiration of the derivatives may have a limited impact on spot prices.
The volatile start of that week that saw Bitcoins sell-off from nearly $11,000 to $10,000 in a matter of hours may have an even more turbulent ending. According to the Skew, provider of data for Bitcoin and Ether derivative, 88,000 Bitcoin options contracts are set to expire on Friday, September 25.
#bitcoin options total open interest briefly reclaiming all-time-high before blockbuster expiry Friday of 88k options pic.twitter.com/tWPsSgjX0a
— skew (@skewdotcom) September 23, 2020
An option is a complex financial instrument that allows holders to sell or buy the underlying asset at a specific price (strike) at the expiration date. When it comes to the cryptocurrency market, options traders do not have to purchase or hold real coins; however, they often manipulate the spot prices towards their strike, creating large price swings ahead of the expiration.
Currently, over $100 million worth of BTC contracts trades every day across all exchanges - Deribit, Okex, Ledgerx, CME Group, Huobi, Bakkt, and Bit.com. It is more than half the total Bitcoin's market capitalization and three times as much as the daily average trading volume on the spot market.
The secret weapon
A closer look at the Bitcoin options stats reveals a somewhat bullish picture. According to the options market analytics provider Coinoptinstrack, call options are leading puts on the expiration date, which is a bullish setup. Meanwhile, the maximum put strike is $11,000, and a max call strike is $12,000, both above the current price.
Strike prices on September 25
Source: Coinoptinstrack
Basically, it means that some traders ignored the rule of a thumb that September is a bad month for Bitcoin and bet on the further price increase. The optimism might have been inspired by a Bitcoin's move above $11,000 on September 19.
Call options give the buyer a right to purchase BTC at a fixed price upon the expiry. Meanwhile, put options protect them from the price drops as they provide them with the right to sell the underlying asset at a specific price. The buyers of the options pay a premium to the sellers, influenced by the current sentiments.
If the market leans to the bullish side, the premium on call (buy) options increases and pushes the delta skew into the negative territory. On the other hand, bearish sentiments are accompanied by a larger premium on put (sell) options and a positive delta skew.
BTC 3-month options 25% delta skew
Source: Skew.com
The chart above shows that the skew indicator is below -10%, which is often considered a bullish signal.
On the spot
The spot market may be vulnerable to high volatility caused by the upcoming expiration date on futures and options markets. However, the history of the previous three expirations shows that these instruments' impact on the spot prices may be exaggerated. The intraday range on all three occasions did not exceed $300.
BTC/USD daily chart
At the time of writing, BTC/USD is changing hands at $10,500. The coin has barely changed both on a day-to-day basis and since the beginning of Wednesday as the market is paralyzed by the growing uncertainty on the global markets. As we have explained recently, Bitcoin may be vulnerable to the short-term losses ahead of the US presidential elections, even though the options market tells a different story.
Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer. Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Recommended Content
Editors’ Picks
Ripple on-chain metrics show bullish signs amidst legal struggle with SEC, XRP eyes recovery
![Ripple on-chain metrics show bullish signs amidst legal struggle with SEC, XRP eyes recovery](https://editorial.fxstreet.com/images/Markets/Currencies/Cryptocurrencies/Coins/Ripple/Ripple_Coin_31_02_XtraSmall.jpg)
Ripple made a comeback above $0.48 on Tuesday and hovers above that level in Wednesday’s European session. Ripple on-chain metrics such as transaction volume and Network Realized Profit/Loss have turned bullish, supporting a recovery in the altcoin.
Bitcoin price falls amidst German government transfers, miners activity
![Bitcoin price falls amidst German government transfers, miners activity](https://editorial.fxstreet.com/images/Markets/Currencies/Digital%20Currencies/Bitcoin/bit-coin-symbol-flag-3d-illustration-59931110_XtraSmall.jpg)
Bitcoin (BTC) extends correction on Wednesday and hovers around $61,000 after finding resistance near the $64,000 level on Monday. Recent on-chain data indicates heightened selling activity from Bitcoin miners early in the week.
Crypto Today: Bitcoin erases gains from end of June, Ethereum declines while Ripple holds
![Crypto Today: Bitcoin erases gains from end of June, Ethereum declines while Ripple holds](https://editorial.fxstreet.com/images/Markets/Currencies/Digital%20Currencies/Bitcoin/Bitcoin_2_XtraSmall.jpg)
Bitcoin wipes out gains from the last week of June and falls below $60,000 on Wednesday. Ethereum and top altcoins ranked by market capitalization erased gains as the inflation outlook worsened. Ripple holds on to recent gains and hovers above $0.48 on Wednesday.
Three reasons why altcoins could shake off losses this week
![Three reasons why altcoins could shake off losses this week](https://editorial.fxstreet.com/images/Markets/Currencies/Cryptocurrencies/cryptos_XtraSmall.jpg)
On-chain data from Santiment shows that altcoins are currently in the opportunity zone, or generating buy signals. The top three altcoins in the buy zone are Basic Attention Token (BAT), Chromia (CHR), and Highstreet (HIGH), per Santiment.
Bitcoin: BTC price correction could end in July, according to seasonal data
![Bitcoin: BTC price correction could end in July, according to seasonal data](https://editorial.fxstreet.com/images/Markets/Currencies/Digital%20Currencies/Bitcoin/bitcoin_5_XtraSmall.jpg)
Bitcoin (BTC) price appears poised for a decline this week, influenced by slight outflows in US spot ETFs, selling activity among BTC miners, and a combined transfer of 4,690.28 BTC to centralized exchanges by the US and German governments.