Data shows Bitcoin traders’ neutral view ahead of Friday’s $750M BTC options expiry

Bitcoin (BTC) has rebounded 11% from the low of $39,650 on January 10, and at the moment the price is struggling with the $44,000 level. There are multiple explanations for the recent weakness, but none of them seem to be sufficient enough to justify the 42% correction that has occurred since the all-time high on November 10 at $69,000.

At that time (November 12), negative comments were issued by the US Securities and Exchange Commission (SEC) regarding the rejection of the actual VanEck ETF. The regulator noted the inability to avoid market manipulation due to unregulated exchanges and heavy trading volume based on the Tether (USDT) stablecoin.

Then, on December 17, the US Financial Stability Oversight Board recommended that state and federal regulators review regulations and tools that can be applied to digital assets. On January 5, BTC price corrected again after The December FOMC session of the Federal Reserve confirmed its plans to ease debt buybacks and likely raise interest rates.

In terms of derivatives markets, if the bitcoin price trades below $42,000 by January 14, the bears will have a net profit of $75 million on their bitcoin options.

Bitcoin options collect open interest on January 14th. Source: Coinglass

At first glance, $455 million Call-to-Petting options eclipse $295 million, but the 1.56 Call-to-Petting ratio is deceptive because the 14% price drop over the past three weeks is likely to eliminate most bullish bets.

If the Bitcoin price remains below $44,000 at 8:00 AM UTC on January 14, only $44 million of these call (buy) options will be available at expiration. There is no value in the right to buy Bitcoin at $44,000 if BTC is trading below this price.

Bears may make $75 million in profit if BTC is below $42,000

Here are the four most likely scenarios for the $750 million options to expire on January 14. The imbalance in favor of each side represents the theoretical profit. In practice, depending on the expiration price, the amount of buy (buy) and sell (sell) contracts that become active varies:

  • Between $40,000 and $43,000: 480 calls versus 2,220 puts. The net result is $75 million in favor of put options.
  • Between $43,000 and $44,000: 1390 calls for 1130 points. The net result is a balanced buy and sell options.
  • Between $44,000 and $46,000: 1760 calls vs 660 puts. The net result is $50 million in favor of call options (bull).
  • Between $46,000 and $47,000: 1220 calls vs 520 puts. The net result is $125 million in favor of call options (bull).

This crude estimate considers selling options used in neutral to bearish bets and buying options exclusively in bullish trades. However, this oversimplification overlooks more complex investment strategies.

For example, a trader could sell a put option, effectively gaining positive exposure to bitcoin above a certain price. But unfortunately, there is no easy way to estimate this effect.

Related: Traders say bitcoin trading to $44,000 could be a comfortable bounce, citing December ‘nuclear weapons’ recurrence

Bulls need $46,000 for a decent win

The only way the bulls can make significant gains on January 14th is to keep Bitcoin above $46,000. However, if the current negative short-term sentiment prevails, the bears could easily push the price down by 4% from the current level of $43,800 and raise profits by as much as $75 million if the bitcoin price stays below $42,000.

Currently, the options markets look balanced, giving bulls and bears equal odds of an expiry on Friday.

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