Bitcoin bulls target $40K as Friday’s $1B BTC options expiry approaches
On Feb. 5, a total of $1 billion in Bitcoin (BTC) options open interest is set to expire. This number is small relative to the past month’s $4 billion options expiry, but monthly and quarterly options typically concentrate the most volume.
Friday’s expiry is somewhat unusual although it is balanced at the current BTC levels. Data also shows that bulls have many incentives to push up the price above $38,000.
Deribit exchange holds 84% market share for Friday’s expiry. By analyzing the aggregate open interest between $28,000 and $43,000, there are $300 million worth of neutral-to-bullish call options stacked against $290 million open interest from put options.
Therefore, by analyzing strikes 25% above or below the current BTC price, there’s virtually equilibrium from both sides.
As per the above data, the neutral-to-bearish put options are concentrated at $34,000 and below. Between $34,000 and $36,000 strikes, there’s a perfect balance, as both call and put options are equally matched.
Despite the discrepancy below $32,000, bears incentive to push the price down presents a 3,400 BTC contracts imbalance. That translates into a $109 million open interest for a 13% or more negative price move. Although nominally significant, it doesn’t seem enough to create the incentives required to take the bulls by surprise.
On the other hand, if bulls want to prop up the price up to $38,000, that would result in a 2,800 BTC contracts imbalance. This situation is equivalent to a $106 million open interest for a 4% positive price swing, thus a better risk-reward for such an effort.
To assess whether market makers and arbitrage desks are pricing the risk for upside or downside, the 30% to 20% delta skew is the most useful indicator. It measures the premium difference between the neutral-to-bullish calls options stacked against similar put options.
Numbers between 0 and 15 are considered neutral, whereas a negative delta skew indicates that large option traders request an extra premium to take downside risks, hence regarded as bearish.
The last time a situation like this occurred was on Dec. 29, and over the past five days, the indicator has held at 10. This data shows a perfect balance between risks, meaning there are no incentives for market makers and arbitrage desks to pressure BTC in either way as the Feb. 5 expiry approaches.
OKEx, Bit.com, and Deribit weekly contracts mature on Feb. 5 at 8:00 AM (UTC).
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