Bitcoin bulls look to profit from Friday’s $195M BTC options expiry

Bitcoin (BTC), which has been testing the $44,500 resistance multiple times over the past ten-days, saw a 16% decline from its previous week’s $53,000 local peak. Options markets data shows that bulls are not affected by the liquidations of $3.4 billion worth long futures contracts on Sept. 7, when BTC fell 18.7%, but they still have optimism.

Bitcoin price on Coinbase in USD Source: TradingView

If historical data is any factor in Bitcoin’s price, September saw negative performance in four years and BTC closed August trading at $47.110.

Institutional investors have been adopting cryptocurrency at a steady rate, regardless of its price. Morgan Stanley, the United States’ largest bank, has appointed a lead crypto analyst to its dedicated team of cryptocurrency researchers.

The most important positive factor for a bull run of 50% or more is approval by the United States Securities and Exchange Commission. Fidelity Digital Assets is an investment arm of the $4.2 Trillion global fund manager. On Sept. 8, several SEC officials met privately to discuss the risks and benefits of a Bitcoin-tradable product.

Fidelity applied for a Bitcoin ETP, the Wise Origin Bitcoin Trust, in March 2021. However, the regulator continues to delay issuing their final decision. The SEC has not yet analyzed more than 20 similar applications made by other firms.

Open interest in bitcoin options for September. Source: Bybt.com

The Sept. 17 expiry will prove to be a test for bears, as 88% of the $310,000,000 put (sell) options were placed at $47,000 and lower. If BTC trades at or above this price on Sept. 17, then the neutral-to bearish put option open interests gets reduced to $36 million.

A put option allows you to sell Bitcoin at a fixed price, on a set date. A $45,000 put option is worthless if BTC trades at or above this price on Sept. 17th, 8:00 UTC.

The bull’s apparent advantage is misleading

Bulls also benefit from a wider view, as the total open interest in the call (buy), options instrument is $500 million. This is 62% more than the call-to–put ratio.

This data could be misleading as the bulls’ overoptimism could cause them to lose all their bets. Their open interest drops to $34million if Bitcoin’s expiry price falls below $47,000. If Bitcoin is trading below $57,000, then a right to purchase Bitcoin at $52,000 is not worth much.

These are the most likely scenarios based on current prices. The potential profit from expiry is represented by the imbalance favoring one side. Below is data that shows the number of contracts available on Friday depending on the expiry price.

Between $45,000 to $46,000: 240 calls against 1,980 put. The net result favors the protective put (bear). Between $46,000 and $48,000, there is a balance between bulls and bears. Between $48,000 and $50,000, there are 3,500 calls and 620 puts. The net result favors the call (bull), options. Above $50,000: 4,150 calls, vs. 2,260 puts. The net result is a dominance of $195 millions from bullish instruments.

This rough estimate assumes that call (buy) options are only used in bullish strategies, and put (sell), options are used in neutral-to bearish trades. Real life isn’t always so simple. It’s possible to deploy more complicated investment strategies.

Bulls can use incentives to attempt to break the $50,000 mark.

In the hours before Friday’s expiry, buyers and sellers will both show their strength. Bears will attempt to limit the damage by keeping BTC below $48,000. If BTC stays above $48,000, however, the bulls will have a good handle on the situation.

Bears are at their highest stress level at $50,000. Bulls, however, have substantial incentives to win the weekly expiry and secure a fair $195 million advantage.

There is still some volatility before Friday and the bulls appear to be in a better position.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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Eileen Wilson

Eileen Wilson –Technology and Energy My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.

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