$1.12B in Bitcoin Options Expires This Week, and Bulls Seem to be at a Disadvantage

Bitcoin’s (BTC) 43% rally between March 10 and March 20 surprised options traders, evidenced by the minuscule 14% of the $1.12 billion open interest set to expire on April 7 being placed at 28,000 dollars and higher.

The positive price movement can be attributed in part to an increase in commodity demand, as investors perceive risk in the central bank’s emergency financing programs, as the injection of liquidity causes upward inflationary pressure.

According to Urban Angehrn, CEO of the Swiss Financial Supervisory Authority (FINMA), if Credit Suisse had not been bailed out, “many other Swiss banks would probably have faced a run on deposits.” Angehrn added that “it was highly likely that the resolution of a global systemically important bank would have led to contagion effects and put financial stability at risk in Switzerland and globally.”

Investors’ appetite for commodities increased sharply after the US Treasury reportedly discussed the possibility of extending Federal Deposit Insurance Corporation (FDIC) insurance for bank deposits on March 21. Oil prices as measured by WTI have risen 23.5% since March 20, and gold broke above $2,000 on April 5 – the highest daily close since August 2020.

An unexpected shockwave on a $33 trillion asset class previously thought to be a safe haven for inflation could also benefit the commodities sector. Morgan Stanley Wealth Management has issued a warning on the commercial real estate market, predicting problems with refinancing.

According to the bank’s report, the sector has been hit hard by an increase in teleworking and layoffs in companies, which has resulted in unemployment reaching a 20-year high. As a result, investment banking strategists predict a 40% drop in commercial real estate prices and state that “more than 50% of the $2.9 trillion in commercial mortgages will have to be renegotiated over the next 24 months when new lending rates are likely to rise by 350 to 450 basis points.”

Bitcoin bulls may have benefited from increased demand for inflation protection, but some may have squandered the opportunity by placing size bets at $30,000 or higher.

The Bulls placed 85% more plays, which did not translate into wins

The expiration of the weekly BTC options has $1.2 billion in open interest, but the actual number will be lower because bulls have concentrated their bets on Bitcoin price trading above $29,000.

The call-to-put ratio of 1.85 reflects the difference in open interest between $720 million call (buy) options and $390 million put (sell) options. However, the outcome will be much lower as the bulls were overly optimistic.

For example, if Bitcoin’s price remains near $28,100 on April 7 at 8:00 UTC, there will only be $125 million in call options. This difference arises since the right to buy Bitcoin at $29,000 or $30,000 becomes void if BTC trades below that at expiration.

Related: Will Bitcoin Break Above $30K? New JOLTS data, weaker chances of dollar appreciation

Bulls and bears have similar incentives, so the outcome is unpredictable

Below are the four most likely scenarios based on current price action. The number of option contracts available on April 7 for call (buy) and put (sell) instruments varies depending on the expiration price. The imbalance favoring each side constitutes the theoretical profit:

• Between $26,000 and $27,000: 300 calls vs. 6000 putts. The net result favors the put (sell) instruments by $150 million.
• Between $27,000 and $28,000: 1200 calls against 3500 putts. Net income favors the instruments of sale by $60 million.
• Between $28,000 and $29,000: 4,500 calls vs. 1,100 putts. Bulls turn the tables and earn $100 million.
• Between $29,000 and $30,000: 8,500 calls vs. 100 putts. The Bulls’ advantage increases to $240 million.

This rough estimate only considers put options in bearish plays and call options in neutral-to-bullish trades. Nevertheless, this simplification precludes more complex investment strategies. A trader, for example, could have sold a call option, effectively gaining negative exposure to Bitcoin above a certain price, but this effect is difficult to estimate.

The critical level for the weekly expiration is $28,000, but it is impossible to predict the outcome due to increased economic recession risk and market volatility. If bulls are able to secure $100 million, those funds will most likely be used to further bolster support levels.

The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.