$15.2B Crypto Options Expiry May Fuel Bullish Surge

Key Takeaway

• $15.2 billion in Bitcoin and Ether options set to expire, potentially sparking bullish volatility.
• 41% of Bitcoin's and 15% of Ether's quarterly open interest could expire in the money, indicating upward pressure.
• Market dynamics around max pain points and dealer gamma positioning may exacerbate volatility around $70,000 for Bitcoin.

Massive Options Expiry Looms

The cryptocurrency market is on the cusp of a significant event with the impending quarterly expiry of Bitcoin (BTC) and Ether (ETH) options contracts worth $15.2 billion at Deribit, the leading cryptocurrency options exchange. This expiry, scheduled for Friday at 08:00 UTC, is one of the largest in Deribit's history and represents a substantial portion of the total notional open interest in these cryptocurrencies. Specifically, Bitcoin options account for $9.5 billion or 62% of the total, with Ether options making up the remainder. This event is poised to eliminate 40% and 43% of Bitcoin and Ether's total notional open interest across all maturities, respectively.

Bullish Volatility Expected

Observers, including Luuk Strijers, chief commercial officer at Deribit, anticipate that the large volume of options set to expire in-the-money (ITM) could inject bullish volatility into the market. For Bitcoin, options worth $3.9 billion are expected to expire ITM, which is 41% of the total quarterly open interest. Similarly, 15% of ETH’s total quarterly open interest is on track to expire ITM. Strijers highlighted the unusual levels of ITM expiries and the low max pain levels due to the recent price rally, suggesting potential upward pressure or volatility in the underlying assets.

Market Dynamics and Regulatory Shadows

The market is also bracing for increased volatility due to hedging activities by dealers or market makers, as explained by David Brickell, head of international distribution at FRNT Financial. Dealers are short some $50 million of gamma, with a focus around the $70,000 strike for Bitcoin. This positioning could lead to choppy price movements around this level as the expiry approaches. Meanwhile, the broader crypto market faces regulatory scrutiny, with the Ethereum Foundation under investigation and the SEC's slow-walking of Ether ETF approvals, adding layers of uncertainty to the market dynamics.

Street Views

• Luuk Strijers, Deribit (Bullish on Bitcoin and Ether):

  "Large amounts of options are set to expire in-the-money (ITM), which could inject upward pressure or volatility into the market... These levels are higher than usual, which can also be seen in the low max pain levels. The reason is, of course, the recent price rally. Higher levels of ITM expiries might lead to potential upward pressure or volatility in the underlying."

• David Brickell, FRNT Financial (Bullish on Bitcoin and Ether):

  "The big impact, however, is [from] the gamma positioning of dealers into the event. Dealers are short some $50 million of gamma, with the majority focused at around the $70,000 strike. As we near the expiry, that gamma position gets larger and the forced hedging will exacerbate volatility around $70,000, providing for some wholly choppy moves either side of said level."