A trader who bet on $65,000 by October 22nd would have been extremely optimistic when Bitcoin (BTC), was trading below $52,000 two or three weeks ago. This is evident by the fact that 98% (or sell) of Bitcoins weekly options expire on Oct. 22 and have been traded below that price.
Now, fast forward to this week. The successful launch of the first BTC ETF (ETF), in the United States, as well as news that Digital Currency Group, the parent company to the Grayscale Bitcoin Trust, raised its limit to purchase up to $1B worth of GBTC shares, boosted Bitcoins price to new all time highs.
The investment vehicle, valued at $40.5 billion, has been trading on US markets since March 2015. It recently applied to the United States Securities and Exchange Commission to convert its GBTC product into an ETF.
Bitcoin prices on Coinbase in USD Source: TradingView
Billionaire investor Carl Icahns bullish comments also fuelled the parabolic rise to $67,000 on Oct. 20. Icahn, who has four decades of spectacular returns, warned of a financial crisis and emphasized Bitcoins potential as an inflationary hedge.
Vasiliy Shpak (Russias deputy minister for Industry and Trade) reportedly submitted a proposal to make use of the countrys oil exploration and gas production to power cryptocurrency mining. Despite trying to reduce emissions through gas flaring, the Russian government has not been able to meet its targets because of its insufficient infrastructure.
Although Oct. 22s expiry of $1.8 billion options is a huge victory for bulls it was not like that just a few weeks ago.
Bitcoin options for Oct. 15 aggregate open interest Source: Bybt
The Oct. 22 expiry of $1 billion call options (buy) is clear at first glance, but only 23% more than the $810 million put (sell) instruments.
The 1.23 call-to put ratio is misleading because most bearish bets will be wiped out if Bitcoins value remains above $64,000 by Oct. 22 at 8:00 AM UTC. If Bitcoin is trading at above $60,000, there is no value to a right of sale.
Bulls feel quite at home above $65,000
These are the most likely outcomes for the Oct. 22 expiry. The theoretical profit is the imbalance that favors one side. The expiry price determines the amount of active call (buy) or put (sell) contracts.
Between $60,000 to $62,000: 8,670 call vs. 3,070 put. The net result is $335,000,000 favoring the call bull instruments. Between $62,000 and $64,000, 10,780 calls vs. 2,100 put. The net result favors the call (bull), instruments at $540 million. Between $64,000 and $66,000, 13,050 calls vs. 2,100 puts. The net result favors the call (bull), instruments. Above $68,000: 13,680 called vs. 20, puts. Bulls are enjoying $940 million of profit, while the net result is total dominance.
This rough estimate includes call options used in bullish bets, and put options only in neutral-to bearish trades. This simplifies investment strategies that are more complicated.
A trader might have sold a put option to gain exposure to Bitcoin at a higher price. Unfortunately, its not possible to accurately estimate the effect.
To reduce their losses, bears require a 7% price adjustment
Bulls control Oct. 22s expiry in all of the above scenarios. Investors have little incentive to profit from this weeks positive newsflow or accept a price decline before the expiry. To avoid an $830million loss, bears must move below $62,000 by 7%.
Traders should remember that bull runs are often characterized by sellers exerting a lot of effort to push the price up. This is usually ineffective and costly. Options markets data currently point to a significant advantage in call (buy), which will fuel more bullish bets for Oct. 29s monthly expiry.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.