The open interest in Bitcoin options has been relatively steady over the last two months, but the figure experienced a 118% increase in January to hit $8.8 billion as Bitcoin’s price rose to its all-time high. Bitcoin’s price surge and the rising open interest on its options has caused a historic $3.8 billion expiry set for January 29.
Some data aggregators have shown over $50 billion to $100 billion in daily BTC volume. However, according to a 2019 report by Bitwise Asset Management, many exchanges have been reported to use some questionable techniques to inflate trading volumes. The potential impact of such a large expiry can best be understood by comparing it to the large volumes experienced at spot exchanges.
When analyzing exchange volumes, it is best to source figures from trusted data aggregators instead of sorely trusting on that which is provided by the biggest exchanges.
Data from Bybit shows that BTCs spot volume at exchanges averaged $12 billion within the last 30 days. This is a 215% growth from the last month, meaning that the upcoming $3.8 billion expiry is around 35% of spot BTC daily average volume.
A high percentage of all Bitcoin options will expire on January 29
Many exchanges offer options with a monthly expiry but some have weekly options offered through short-term contracts. The highest percentage of options contracts to expire were on December 25, 2020. The day set a record of $2.4 billion worth of options contracts that expired. This was 31% of all open interest and indicates how options are spread out throughout the year.
Information from Genesis Volatility indicates that Deribit’s expiry calendar for Jan 29 has 94,060 BTC. This high number sums up 45% of the contracts set to expire in twelve days. Other exchanges also have a similar effect, though Deribit’s market share is at 85%.
Normally, not all options will trade at expiry because some of the strikes are unreasonable, and there are only a few days left until the expiry.
As such, the call options for a bullish trend to $46,000 and above are at the moment considered worthless as well as the bearish options set below $28,000 since 68% of them are now effectually worthless. Therefore, only 39% of the $3.8 billion set to expire on Jan. 29 are worth exploring.
An analysis of open interest provides data on trades that have already passed while the skew indicator monitors options in real time. The measure is even more significant as just thirty days ago Bitcoin was trading below $25,000. The open interest around this level does not therefore indicate bearishness.
Market makers not ready to take upside risk
The single most relevant gauge is the 20%-30% when analyzing options as it compares buy and sell options side-by-side.
A 10% delta skew shows that call options are trading at a premium to the more bearish/neutral put options. A negative skew is a signal that traders are bearish and shows a higher cost of downside protection.
The data from Genesis shows that the last time a bearish sentiment was recorded was Jan. 19 when the price of Bitcoin crashed by 15%. After this, the 30%-20% delta skew passed 30, which brought a lot of optimism.
The indicator is a reflection of fear of potential price upside from market makers and professionals whenever it passes 20. Therefore, the market is considered bullish.
Close to 60% of the options are already considered worthless even though the $3.8 billion expiry is horrific. Bulls are in control of the remaining open interest as the recent price spike to a new all-time high annihilated most of the bearish options. A huge number of put options will lose value if Bitcoin remains in the $30,000 to$32,000 range as the expiry nears.
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