$600M in Bitcoin Options Expires on Friday, Giving Bears Reason to Pin BTC Below $16K

No one can blame Bitcoin (BTC) bulls for placing bets of $20,000 and above for the $600 million weekly options expiring on November 18. After all, this level had provided solid resistance since October 25 and held for nearly two weeks.

However, the basic scenario changed abruptly on 8 November after a liquidity crisis stopped withdrawals on the FTX exchange. The move caught traders by surprise and over a 48-hour period, over $290 million in gearing buyers were liquidated.

The market quickly adjusted to the news, moving from $15,800 to $17,800 over the past seven days. At the moment, investors are afraid that contagion risk could force other key players to sell their cryptocurrency positions.

FTX had significant deposits from key industry players, so the demise meant that other participants would also face significant losses. For example, BlockFi had a $400 million credit line with FTX US. On November 15, the SALT safety-of-returns platform disclosed significant losses from the FTX collapse and subsequently halted withdrawals.

Similar events occurred on the Japanese cryptocurrency exchange Liquid, which increased the level of uncertainty in the entire market.

The expiration of the options on November 18 is particularly relevant because Bitcoin bears can secure a $120 million profit by suppressing BTC below $16,500.

Bulls placed their bets at $20,000 and up

The open interest for the weekly options expiring on November 18 is $600 million, but the actual number will be lower as the bulls were overly optimistic. These traders missed the mark, placing bearish bets at $18,000 and above, while BTC was dumped following the FTX bankruptcy.

The call-to-put ratio of 1.00 shows the perfect balance between $300 million put (sell) open interest and $300 million call (buy) options. Still, as Bitcoin nears $16,500, most bullish bets will become worthless.

If Bitcoin’s price remains below $17,500 at 08:00 UTC on October 21st, only 10% of these call (call) options will be available. This difference occurs because a right to buy Bitcoin at $18,000 or $19,000 is worthless if BTC trades below the expiration price.

Bulls need a pump above $18,000 to get out in front

Below are the four most likely scenarios based on current price action. The number of Bitcoin options contracts available on November 18 for call (bull) and put (bear) instruments varies, depending on the expiration price. The imbalance favoring each side constitutes the theoretical profit:

• Between $15,500 and $16,500: 400 calls vs. 7,900 putts. The net result favors the put (bear) instruments by $120 million.
• Between $16,500 and $17,500: 1700 calls vs. 6100 putts. The net result favors the put (bear) instruments by $75 million.
• Between $17,500 and $18,000: 2,500 calls vs. 5000 putts. The net result favors the put (bear) instruments by $45 million.
• Between $18,000 and $18,500: 4500 calls against 3100 putts. The net result favors the call (bull) instruments by $25 million.

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

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

Related: Bitcoin Price Falls to $16.4K on Genesis Troubles as Leaders Defend GBTC

BTC price drop below $16,000 should not be surprising

Bitcoin bears need to push the price below $16,500 to secure a $120 million profit. The bulls’ best-case scenario requires a 10% pump above $18,000 to turn the tables and achieve a $25 million gain.

Considering that Bitcoin margin and options instruments show low confidence in regaining the $18,500 support, the most likely outcome for Friday’s expiration favors bears. Bulls may be better off throwing in the towel and focusing on the monthly options expiring on November 25th.