Ahead of record drop in options

Ahead of record drop in options: bitcoin plummets again – despite Tesla boost

An early morning surge in the bitcoin market on Wednesday, led by Tesla’s announcement that it would immediately allow payment with bitcoin, turned into jitters before the close of the US session – leading to a drop of more than $5,500 and ending the day 3.81 per cent lower.

Powell strikes again

Bitcoin’s seesaw largely took place in the wake of Jerome Powell’s testimony before the Senate Banking Committee. The Federal Reserve chairman said he was not worried about the Bitcoin Code recent rise in longer-term bond yields, adding that its rise reflected investor optimism about the US economic recovery amid the prospect of the launch of the COVID-19 vaccine.

The general expectation was that the Fed would intervene if bond yields rose too quickly. So far, however, the Fed has avoided intervening, raising fears that it would allow interest rates to rise indefinitely.

As a result, assets that have performed extremely well during the pandemic are at risk of a downward correction. That includes tech stocks and bitcoin.

On Wednesday, bitcoin and Wall Street rose and fell in tandem, with a very similar reaction to Powell’s statement.

Bitcoin options expire

The shaky moves in the bitcoin spot market also seemed to be when the focus shifted to a record-breaking option expiration.

An option contract is a type of derivative that gives traders the right, but not the obligation, to buy or sell the underlying asset at a set price (or strike price) on or before an expiry date. Meanwhile, an out-of-the-money (OTM) situation arises when the strike price becomes higher or lower than the spot price.

About 104,000 contracts worth more than $6 billion are about to expire on major exchanges: Deribit, Huobi, OKEx, LedgerX, and others. Most of these open contracts come from Deribit, the world’s largest crypto options exchange by trading volume.

It is on track to record a monthly drop of more than 96,000 contracts in bitcoin options.
On October 26, bitcoin options worth more than $6 billion will expire. Source: ByBt.com

Currently, call options are OTM with strike prices above $52.875. Similarly, put options with strike prices below the current spot price are also OTM.

Data obtained by ByBt.com shows that about 43 percent of bitcoin option contracts expiring this Friday are worthless.

With the remaining open interest, the bulls remain in control – as the bitcoin option call/put ratio stands at 1.13.

If bitcoin (go to Plus500 bitcoin buying guide) continues to trade above $52,000, most put options will lose their value, which in turn would increase opportunities to hold bullish call options.

Upside interest remains stuck at $58,000, meaning the bitcoin spot market could see massive volatility between these two levels in the coming sessions.