3 Reasons Bitcoin Bulls Are Well Positioned to Profit from This Week’s $4.2B Options Expiration

Regulation continues to be the primary concern for Bitcoin bulls, especially after the Commodity Futures Trading Commission (CFTC) sued Binance for violating the Trading and Derivatives Act. The regulator wants Binance to repay the trading profits, revenues, salaries, commissions, loans and fees it received from US citizens, as well as pay civil penalties for the violations.

The rise in Bitcoin’s price was also driven by a shift in sentiment toward risk assets after US Federal Reserve Chairman Jerome Powell said interest rate hikes are no longer the standard move to curb inflation. The Central Bank understood that the current situation is likely to “result in tighter credit conditions for households and businesses, which in turn will affect economic outcomes”.

Fixed income investors earn more when interest rates rise, so it becomes less attractive to buy stocks and commodities. As a result, by reversing its strategy and adding $339 billion in debt in two weeks, the Fed chose to contain the banking crisis, which could cause inflation to spiral out of control.

Given the rising risk asset scenario, Bitcoin bulls could make up to $1.4 billion on Friday’s monthly options expiration.

Bitcoin bears were caught completely off guard

The open interest for the March 31 expiration of the options is $4.2 billion, but the actual number will be lower since the bears expected price levels below $26,500. These traders were surprised when Bitcoin increased by 32% between March 12th and March 17th.

The call-to-put ratio of 1.34 reflects the imbalance between $2.4 billion call (buy) open interest and $1.8 billion put options. However, if Bitcoin’s price remains close to $28,000 at 08:00 UTC on March 31, only $25 million of these put options will be available. This difference occurs because the right to sell Bitcoin at $26,000 or $27,000 is useless if BTC trades above that level at expiration.

The Bulls are targeting $29,000 to secure a record $1.4 billion profit

Below are the four most likely scenarios based on current price action. The number of option contracts available on 31 March for buy (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

• Between $25,000 and $26,000: 27,200 calls vs. 12,700 putts. The net result favors the call (bull) instruments by $360 million.
• Between $26,000 and $27,000: 32,300 calls vs. 8,500 putts. The net result favors the call (bull) instruments by $620 million.
• Between $27,000 and $28,000: 38,100 calls vs. 3,000 putts. Bulls extend advantage to $1.2 billion.
• Between $28,000 and $30,000: 48,300 calls vs. 400 putts. The Bulls dominate by earning $1.4 billion.

This rough estimate considers the call options used in bullish plays and the put options exclusively in neutral-to-bearish trades. Yet this oversimplification ignores more complex investment strategies.

For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a certain price, but unfortunately there is no easy way to estimate this effect.

Related: ‘Definitely not bullish’ — 7% Bitcoin price gains fail to convince traders

The bear’s best hope depends on regulatory R&D

Bitcoin bulls need to push the price above $29,000 by March 31 to secure a potential profit of $1.4 billion. Bear’s best shot, on the other hand, is more regulatory FUD about stablecoins or major crypto exchanges – which so far has been fruitless.

Given the bullish momentum created by the Fed’s inability to continue raising interest rates, bulls are well positioned for the March BTC monthly options expiration. Most likely, these profits will be used to further strengthen the $28,000 support, so the expected result is particularly worrying for bears.

The Bitcoin (BTC) price has hovered around $28,000 for the past ten days, but the cryptocurrency is up 70.5% year-to-date. Until March 17, Bitcoin traded below $25,000, which explains why most bearish bets on March’s $4.2 billion options expiring were placed at $26,500 or lower.

This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making a decision.

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.