options contracts worth $1.5 billion will expire Friday on unregulated derivatives exchange Deribit. With BTC’s price rebounding 10% in the last month, bullish traders could get a sizable discount.
BTC options contracts allow traders the (ahem) option of buying BTC at a set price. Contracts can be traded throughout the month, typically until the last Friday, meaning those who have purchased contracts can wait until the very last minute to see how the price shakes out. At any point, they can exercise the option or sell it to someone else. If they do neither, the option expires.
The max pain price for this period is $35,000, per Deribit. “Max pain” refers to the point at which overall traders get the least bang for their buck. In essence, it’s the area around which they would be better off just buying BTC rather than having wasted money buying the options (to buy BTC) in the first place.
According to crypto data provider Coinstats, BTC is currently trading at $39,700, an improvement on the $35,000 it was trading at one month ago. As a result, many traders who bought options as crypto prices were swooning stand to get a discount if they exercise their options now that markets have partially recovered. They’ll buy at, say, $35,000 tomorrow instead of $39,000. And those purchases could then, in turn, push the price of BTC higher still.
This Friday 8 AM UTC, 38.6k $BTC are set to expire on Deribit with a notional value of $1.44 billion.
Max pain price $35,000, Put/Call ratio: 0.86 pic.twitter.com/QBwxExZ8w2
— unfolded. (@cryptounfolded) July 27, 2021
Moreover, the put/call ratio of 0.86, which is used to measure investor sentiment, is moderately bearish, giving BTC bulls a chance to clean up. In a nutshell, call options are contracts to exchange BTC at a certain price, if the buyer wants to. Put options are the reverse: They give a person the option to sell at a certain price. When people are buying more calls, it means investors are expecting the price to go up. When they’re buying more puts, they’re looking for a way to cash out should the price crash.
Speaking at the end of April as $3.6 billion in BTC options expired, Arcane Research analyst Vetle Lunde told Decrypt that options expiries can move the market, even at a time when people were increasingly holding onto their BTC.
“We’ve seen BTC rallying with force following all monthly options expiries in 2021, so the market action suggests that large expiries provide a short-term anchor for the price,” he said.
Instead, the price faltered over the next several months, dropping from near-record highs of $58,000 on Friday, April 30, to as low as $31,000 before the June expiry period (which did lead to a rally).
BTC bulls are hoping this expiry period leads to a return to form.