Bitcoin Bulls Target $25K Price on Friday’s $510M Options Expiration

by · August 3, 2022

51 days have passed since Bitcoin (BTC) last closed above $24,000, prompting even the most bullish trader to question whether a sustainable recovery is possible. However, despite the weak price action, bulls have the upper hand on Friday’s $510 million BTC options expiring.

Bitcoin Index/USD 1-Day Price. Source: TradingView

Investors have reduced their risk exposure as the Federal Reserve raises interest rates and unwinds its record $8.9 trillion balance sheet. As a result, the Bloomberg Commodity Index (BCOM), which measures price changes in crude oil, natural gas, gold, corn and lean pork, has traded down 9% over the same period.

Traders continue to seek protection via US Treasuries and cash positions as San Francisco Fed President Mary Daly said on August 2 that the central bank’s fight against inflation is “far from over”. That said, the tighter monetary impact on inflation, employment levels and the global economy is yet to be seen.

Bearish bets are mostly below $22,000

Bitcoin’s recovery above $22,000 on July 27 surprised the bears because only 28% of put (sell) options for August 5 have been placed above such a price level. Meanwhile, Bitcoin bulls may have been fooled by the $24,500 pump on July 30, as 59% of their bets were above $25,000.

Bitcoin Options Collect Open Interest for August 5th. Source: CoinGlass

A broader view using the call-to-put ratio of 1.60 shows more bullish play because call (buy) open interest stands at $315 million versus $195 million put (sell) options. Nevertheless, with Bitcoin currently sitting above $23,000, most bearish bets are likely to be worthless.

For example, if Bitcoin’s price remains above $23,000 at 08:00 UTC on August 5, only $19 million of these put options will be available. This difference occurs because there is no use for a right to sell Bitcoin at $22,000 or $20,000 if it trades above this level at expiration.

The Bulls could have a $200 million windfall

Below are the four most likely scenarios based on current price action. The number of option contracts available on 5 August for buy (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $20,000 and $22,000: 100 calls vs. 3700 putts. The net result favors bears by $75 million.
  • Between $22,000 and $24,000: 1,400 calls vs. 1,600 putts. The net result is balanced between buy (buy) and buy (sell) instruments.
  • Between $24,000 and $25,000: 3,800 calls vs. 100 putts. The net result favors bulls at $90 million.
  • Between $25,000 and $26,000: 0 calls vs. 7900 sets. The Bulls expand their winnings to $200 million.

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.

Related: Inflation punishes the wise while Bitcoin offers future hope — Jordan Peterson

Bears have less margin required to suppress the Bitcoin price

Bitcoin bulls need to push the price above $24,000 on August 5 to secure a $90 million profit. On the other hand, the bears’ best-case scenario requires pressure below $22,000 to put the gain at $75 million.

However, Bitcoin bears had $140 million of leverage short positions liquidated on 26-27. July, according to data from Coinglass. Consequently, they have less of the margin required to push the price down in the short term.

The most likely scenario is a draw, causing the Bitcoin price to hover between $22,000 and $24,000 before the August 5 options expire.

The views and opinions expressed herein are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trade involves risk. You should do your own research when making a decision.