Record $11B Crypto Options Expiry Approaches Amid Stable BTC

• Over $11 Billion Worth of Bitcoin and Ether Options to Expire
• Strong Support for Bitcoin
• Understanding Options
• Investor Activity and Future Expectations
• ETF Decision
• Max Pain Point (MPP)

Over $11 Billion Worth of Bitcoin and Ether Options to Expire

On Deribit, an upcoming expiry of Bitcoin$42,260 -0.64% and Ether options valued over $11 billion is anticipated this Friday. Both cryptocurrencies are currently trading significantly above their max pain points. Despite the large value, one observer believes that the market is not likely to experience substantial volatility before the expiry.

Strong Support for Bitcoin

As the final quarterly options expiry of 2023 approaches, Bitcoin (BTC) continues to maintain a firm position above the $40,000 mark. As of 08:00 UTC this Friday, options tied to Bitcoin and Ether, valued at $7.7 billion and $3.5 billion respectively, will expire on the Deribit crypto exchange.

The total value, exceeding $11 billion, is Deribit's most substantial expiry to date. Nearly $5 billion of this amount is set to expire in the money, which is also a record, and will likely cause an increase in hedging and trading activity, according to Luuk Strijers, the exchange's chief commercial officer.

Understanding Options

Options are derivative contracts that grant the buyer the right, but not the obligation, to purchase or sell the underlying asset at a predetermined strike price on a future date, known as the expiry date. A call gives the right to buy, while a put provides the right to sell. On Deribit, one options contract represents one BTC or one ETH. A call option is in-the-money if the strike price is lower than the market rate, while a put option is in-the-money if the strike price is higher than the going rate.

Investor Activity and Future Expectations

Thanks to a 60% surge in Bitcoin price and a 43% increase in Ether during this quarter, investors are seeking to increase their upside exposure through calls. This has led to a record notional open interest for in-the-money call options.

Strijers has observed that clients are shifting their positions from the December expiry to contracts expiring in January and the following months. This trend could persist until this Friday's quarterly settlement. Post-expiration, all eyes will be on the upcoming decision regarding an exchange-traded fund (ETF).

ETF Decision

The U.S. Securities and Exchange Commission is reported to have January 10 as a deadline for approving or denying a spot ETF that invests directly in Bitcoin, instead of one that invests in futures tied to Bitcoin. Many participants in the industry anticipate that a spot fund will be approved, which could usher in continued upside price volatility in Bitcoin's historically bullish halving year.

Max Pain Point (MPP)

Most of the open interest is concentrated in calls or derivatives that offer upside protection. The chart shows the notional open interest for both BTC call options and put options at various strikes that will expire on Friday, as well as Bitcoin's max pain point (MPP). The MPP is the level at which options buyers has the most to lose upon expiry. In most of 2021 and late 2020, Bitcoin's volatility moved towards the MPP before an expiry, reverting to the uptrend after settlement.

An analyst, Chang, anticipates stable prices prior to Friday's expiry, with BTC MPP at $33,000 and ETH MPP at $1,900, both far from the current market prices. Chang believes that there is currently little need for concern regarding the MPP. However, he intends to closely monitor any new options trading activity following the significant options expirations.

Edited by Jonathan Stoker