With BTC price under $57,000, bears appear to have a slight advantage in this week’s $950 million BTC options expiry.
Bitcoin (BTC) price is down this week, and naturally, bears will always find some reversal signal whenever the price shows strength, such as the 8% gain on Nov. 28. Of course, technical analysis is not an exact science, so there is a margin for interpretation and most traders look at multiple timeframes to find a narrative that suits their bias.
Currently, BTC price is in a descending channel that started on Oct. 31, and if this pattern plays out, Bitcoin could drop to $50,000 in the short term.
Cryptocurrency markets crashed on Nov. 26 after concern over a new COVID-19 variant sparked a global market sell-off. As Bitcoin dipped below $54,000, bears saw a $215 million potential profit on Friday’s options expiry, but that changed after BTC price regained the $57,000 support.
Furthermore, regulatory concerns coming from the United States continue to pressure the market. On Nov. 24, the U.S. Senate Banking Committee chair sought information from stablecoin issuers and exchanges by Dec. 3.
In early November, the President’s Working Group on Financial Markets released a report suggesting that stablecoin issuers in the U.S. should be subject to “appropriate federal oversight” similar to banks’ legislation.
Fueled by the potential government interference and negative short-term consequences, Bitcoin bears are likely to profit $80 million on Dec. 3 options expiry.
At first sight, the $460 million call (buy) options are evenly matched with the $485 million put (sell) instruments, but the 0.96 call-to-put ratio is deceptive because the 17% price drop from $69,000 will likely wipe out most of the bullish bets.
For example, if Bitcoin’s price remains below $57,000 at 8:00 am UTC on Friday, only $24 million worth of those call (buy) options will be available at the expiry. Therefore, there is no value in the right to buy Bitcoin at $60,000 if it is trading below that price.
Bears are comfortable with Bitcoin below $57,000
Listed below are the four most likely scenarios for the $950 million Dec. 3 options expiry. The imbalance favoring each side represents the theoretical profit. In other words, depending on the expiry price, the quantity of call (buy) and put (sell) contracts becoming active varies:
- Between $54,000 and $56,000: 290 calls vs. 3,480 puts. The net result is $175 million favoring the put (bear) options.
- Between $56,000 and $58,000: 750 calls vs. 2,160 puts. The net result is $80 million favoring the put (bear) instruments.
- Between $58,000 and $60,000: 1,510 calls vs. 1,040 puts. The net result is $30 million favoring the call (bull) options.
- Above $60,000: 2,760 calls vs. 860 puts. The net result is $115 million favoring the call (bull) instruments.
This crude estimate considers call options being used in bullish bets and put options exclusively in neutral-to-bearish trades. However, this oversimplification disregards more complex investment strategies.
For instance, a trader could have sold a put option, effectively gaining a positive exposure to Bitcoin (BTC) above a specific price. But, unfortunately, there’s no easy way to estimate this effect.
Bulls need $58,000 or higher to balance the scales
The only way for bulls to avoid a loss on Dec. 3’s expiry is by pushing Bitcoin’s price above $58,000, which is 2% away from the current $56,900. However, if the current short-term negative sentiment prevails, bears could exert some pressure and try to score up to $175 million in profit if Bitcoin price stays below $56,000.
Currently, options markets data slightly favor the put (sell) options, thus creating opportunities for additional FUD and surprise market crashes.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.