Bitcoin Bulls Aim for a Post-FOMC Win in Friday’s Expiration of $640M BTC Options

The past few months have been painful for Bitcoin (BTC) bulls, but they are not alone. The US central bank’s tightening economic policy has led investors to seek protection in cash positions and inflation-protected bonds.

Rising inflation and recessionary signals have caused the S&P 500 stock index to retreat 19% so far this year. Even gold – previously considered a safe haven – is suffering the consequences, trading down 20% from its all-time high.

The rising cost of a mortgage increased fears that a housing crisis could be underway. Since the Fed started raising interest rates in March, borrowing costs have gone up and up and mortgage rates have reached multi-decade highs.

Regardless of the prevailing bearish sentiment, Bitcoin bulls could still make $270 million on Friday’s options expiration.

$640 million in options expire on November 4

Under November 4 options expiring open interest, Bitcoin bears concentrated their bets between $16,000 and $20,000. These levels may seem bleak right now, but Bitcoin was trading below $19,500 two weeks ago.

At first glance, the $335 million put (sell) options dominate the $305 million call (call) instruments, but the call-to-put ratio of 0.92 doesn’t really tell the whole story. For example, the 7.5% BTC price pump since October 21 wiped out most bearish bets.

A put option gives the buyer the right to sell BTC at a fixed price at 08:00 UTC November 4th. But if the market trades above this price, there is no value in holding that derivative contract, so the value goes to zero.

Therefore, if Bitcoin remains above $20,000 at 08:00 UTC on November 4, only $30 million of these put options will be available at expiration.

Bulls will fight to send Bitcoin above $22,000

Here are the four most likely scenarios for Friday’s option expiration. The imbalance favoring each side represents the theoretical profit. In other words, depending on the expiration price, the active amount of call (buy) and sell (sell) contracts varies:

• Between $19,000 and $20,000: 500 calls vs. 5100 putts. The net result is $90 million which favors the put (bear) instruments.
• Between $20,000 and $21,000: 3300 calls vs. 1500 putts. The net result favors the call (bull) instruments by $40 million.
• Between $21,000 and $22,000: 7,500 calls vs. 200 putts. The net result favors bulls by $155 million.
• Between $22,000 and $23,000: 12,200 calls vs. 0 putts. The Bulls are completely dominant and earn $270 million.

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

Bears need under $20,000 to secure a win

Just a 3% price dump from the current $20,500 level is enough for Bitcoin bears to secure a $90 million profit by the November 4 options expiration. However, these traders have seen a liquidation of $780 million in futures contracts between Oct. 24 and Oct. 28, meaning they may have less margin to cushion bulls’ upward pressure.

For now, Bitcoin bears must capture short-term negative headwinds triggered by tighter macroeconomic conditions to secure a victory.

Accordingly, options market data slightly favors the call (call) options, although a $270 million profit seems far-fetched for BTC bulls.