The Bitcoin (BTC), bulls felt euphoric after the price rose to $69,000 on Nov. 10, because they had a 14.5% gain over five days which meant that they would make $715 million on Nov. 12, when options expire.
Bulls were surprised by the negative 9% price movement on Nov. 16, especially considering that most of the Nov. 19 call (buy) options had been priced at $66,000 and higher. Curiously, this price level was the exception and not the norm.
Price of Bitcoin/USD on FTX. Source: TradingView
The two events that occurred in the last few days might have made bears feel lucky. The United States Securities and Exchange Commission rejected VanEck’s request for a spot Bitcoin ETF. The reason for the decision was more important than the rejection itself, which was expected.
The SEC specifically mentioned their concerns about Tether’s stablecoin (USDT), and the inability to prevent fraud and market manipulation in Bitcoin trading. Eric Balchunas, a Bloomberg senior ETF analyst who is also a cryptocurrency expert, had previously given approval with a 1% chance so it wasn’t surprising that the rejection was not true.
On Nov. 15, U.S. president Joe Biden approved the infrastructure bill. This mandates that digital asset transactions exceeding $10,000 must be reported to the Internal Revenue Service starting in 2024.
Given the above scenario bulls will regret not placing more conservative bets when Nov. 19’s $1.1 billion weekly options expire.
Bitcoin options combine open interest for Nov. Source: Bybt
The $630 million call options (buy) dominate the weekly expiry by 35%, compared to $470 million put instruments (sell). Despite this, the 1.35 call/put ratio is misleading as the recent price crash will likely wipe out most bullish wagers.
If Bitcoin’s price is below $62,000 at 8:20 AM UTC on Nov. 19, then only $68,000,000 worth of these call (buy) options will remain available at expiry. If Bitcoin is trading below $62,000, the right to purchase Bitcoin at $64,000 has no value.
Bears are focused on prices below $60,000
Below are the most likely scenarios that would result in the Nov. 19 $1.1 billion expiry. The theoretical profit is the ratio of each side to the other. The expiry price determines the amount of active call (buy) or put (sell) contracts.
Between $58,000 to $60,000: 10 calls against 3,840 puts. The net result favors the put (bear), options. Between $60,000 and $62,000, 910 calls vs. 1,950 lets. The net result favors the put (bear), instruments. Between $62,000 and $64,000, 2,030 calls vs. 9,40 puts. The net result favors the call (bull), options. Above $64,000: 2,920 calling options vs., 240 put. The net result favors the call (bull), instruments.
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 (BTC), above a certain price. Unfortunately, it’s not possible to accurately estimate the effect.
To turn the tables on bulls, they need a 6% price increase
Bulls can only profit significant amounts on Nov. 19, when Bitcoin prices rise above $64,000. This is just 6% from the current $60,000. Bears can exert pressure and attempt to make $220 million if Bitcoin’s price remains below $58,000.
The options market data favors the put (sell), slightly decreasing the chances of a rally before Nov. 19.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.