Bulls or bears? Both have a good chance when Friday’s Bitcoin options expire

by · July 21, 2022

Bitcoin (BTC) briefly broke above $24,000 on July 20, but the excitement lasted less than two hours after the resistance level proved more challenging than expected. On the plus side, the $24,280 high represents a 28.5% increase from the July 13 swing of $18,900.

According to Yahoo Finance, on July 19 Bank of America published its latest fund manager survey, and the headline was “I’m so bearish, I’m bullish.” The report cited investor pessimism, expectations of weak corporate earnings and equity allocation at the lowest level since September 2008.

The 4.6% gain in the tech-heavy Nasdaq Composite Index between July 18 and 20 also provided the necessary hope for bulls to profit from the upcoming weekly options expiration on July 22.

Global macroeconomic tensions eased on July 20 after Russian President Vladimir Putin confirmed plans to re-establish the Nord Stream gas pipeline after the current maintenance period. But in recent months, data shows Germany has reduced its reliance on Russian gas from 55% to 35% of demand.

Bears placed their bets at $21,000 or lower

The open interest for the options’ July 22 expiration is $540 million, but the actual number will be lower since bears have been surprised. These traders did not expect a 23% rally from July 13 to Ju20 because their bets were aimed at $22,000 and below.

Bitcoin options gather open interest for July 22. Source: CoinGlass

The 1.09 call-to-put ratio shows the balance between $280 million call (buy) open interest and $260 million put (sell) options. Currently, Bitcoin is near $23,500, which means that most bearish bets will likely become worthless.

If Bitcoin’s price remains above $22,000 at 08:00 UTC on July 22, only $30 million worth of these put (put) options will be available. This difference occurs because the right to sell Bitcoin at $22,000 is useless if BTC trades above that level at expiration.

The Bears are targeting $24,000 to secure a profit of $235 million

Below are the four most likely scenarios based on current price action. The number of option contracts available on 22 July 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 $21,000: 900 calls vs. 3000 calls. The net result favors the put (bear) instruments by $60 million.
  • Between $21,000 and $22,000: 2400 calls vs. 3000 putts. The net result is balanced between bulls and bears.
  • Between $22,000 and $24,000: 6,600 calls vs. 500 putts. The net result favors the call (bull) instruments by $140 million.
  • Between $24,000 and $26,000: 9,400 calls vs. 0 putts. The Bulls take total control and earn $235 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 Could Hit $120,000 By 2023, Trader Says As BTC Price Rises 25% In One Week

Bjørn has until Friday to turn things around

Bitcoin bears must push the price below $22,000 on July 22 to avoid a $140 million loss. On the other hand, the bull’s best-case scenario requires a small push above $24,000 to maximize gains.

Bitcoin bears just had $222 million of leverage long positions liquidated from July 17-20, so they should have less margin required to drive the price higher. In other words, bulls have an edge to sustain BTC above $22,000 before the July 22 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.