Bitcoin bulls aim for a post-FOMC win in Friday’s $640M BTC options expiry

Published at: Nov. 2, 2022

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

Surging inflation and recession signals have caused the S&P 500 stock market index to retreat 19% year-to-date. Even gold — previously considered a safe asset — is suffering the consequences, trading down 20% from its all-time high.

The increasing costs of a home mortgage added fear that a housing crisis might 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 profit by $270 million on Friday's options expiry.

$640 million in options expire on Nov. 4

According to the Nov. 4 options expiry open interest, Bitcoin bears concentrated their bets between $16,000 and $20,000. These levels might seem gloomy right now, but Bitcoin was trading below $19,500 two weeks ago.

At first sight, the $335-million put (sell) options dominate the $305-million call (buy) instruments, but the 0.92 call-to-put ratio does not really tell the whole story. For example, the 7.5% BTC price pump since Oct. 21 wiped out most bearish bets.

A put option gives the buyer a right to sell BTC at a fixed price at 8:00 am UTC on Nov. 4. However, if the market trades above that price, there is no value in holding that derivative contract, so its value goes to zero.

Therefore, if Bitcoin remains above $20,000 at 8:00 am UTC on Nov. 4, only $30 million of those put (sell) options will be available at the expiry.

Bulls will fight to send Bitcoin above $22,000

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

Between $19,000 and $20,000: 500 calls vs. 5,100 puts. The net result is $90 million favoring the put (bear) instruments.Between $20,000 and $21,000: 3,300 calls vs. 1,500 puts. The net result favors the call (bull) instruments by $40 million.Between $21,000 and $22,000: 7,500 calls vs. 200 puts. The net result favors bulls by $155 million.Between $22,000 and $23,000: 12,200 calls vs. 0 puts. Bulls are completely dominant, profiting $270 million.

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

Bears need a sub $20,000 to secure a win

A mere 3% price dump from the current $20,500 level is enough for Bitcoin bears to secure a $90 million profit on the Nov. 4 options expiry. However, these traders have undergone a $780 million liquidation in futures contracts between Oct. 24 and Oct. 28, meaning they might have less margin to subdue bulls' upward pressure.

For now, Bitcoin bears need to catch short-term negative headwinds triggered by tighter macroeconomic conditions to secure a win.

Consequently, options market data slightly favors the call (buy) options, even though a $270 million profit seems distant for BTC bulls.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Tags
Related Posts
Bitcoin bulls aim to capture $45K leading into Friday’s $890M BTC options expiry
Bitcoin (BTC) bulls flipped the table on Friday's options expiry after a 14% rally on Feb. 28. Holding the price above $43,000 confirms a decoupling from traditional markets. For instance, the MSCI Emerging Markets equities index is down by 3.5% in 5 days, while the United States Russell 2000 small-capitalization index gained 0.9%. Investors are increasingly concerned about the ramifications of the U.S. Federal Reserve rate hikes expected throughout 2022. As a result, in the past 30 days some big names took a hit. For instance, Paypal PYPL traded down 38%, META corrected 34%, and Shopify SHOP lost 31.5%. The …
Bitcoin / March 3, 2022
Hawkish Fed comments and Bitcoin derivatives data point to further BTC downside
A $750 pump on Aug. 26 took Bitcoin (BTC) from $21,120 to $21,870 in less than 2 hours. However, the movement was completely erased after comments from U.S. Federal Reserve Chair Jerome Powell reiterated the bank’s commitment to contain inflation by tightening the economy. Following Powell’s speech, BTC price dropped as low as $20,700. At Jackson Hole, Powell specifically mentioned that "the historical record cautions strongly against prematurely loosening policy." Right after those remarks, the U.S. stock market indexes reacted negatively, with the S&P 500 dropping 2.2% within the hour. On the Bitcoin chart, the affable “Bart candle,” a reference …
Bitcoin / Aug. 26, 2022
Afraid to buy the dip? Bitcoin options provide a safer way to ‘go long’ from $38K
The last time Bitcoin (BTC) traded above $50,000 was Dec. 27, 2021. Since then, four months have passed, but traders seem somewhat optimistic that inflation has hit the necessary threshold to trigger cryptocurrency adoption. In theory, the 8.5% inflation in the United States means that every five years, the prices increase by 50%. This essentially turns $100 into $66 by slashing 33% of the dollar’s purchasing power. The U.S. Federal Reserve FOMC meeting is expected to rule on the interest rates on May 4, but more importantly, the FED is expected to announce a program to offload part of its …
Bitcoin / May 2, 2022
Bitcoin traders anticipate new yearly lows after BTC’s $25K rejection — Data disagrees
Bitcoin (BTC) showed weakness on Aug. 15, posting a 5% loss after testing the $25,000 resistance. The move liquidated over $150 million worth of leverage long positions and has led some traders to predict a move back toward the yearly low in the $18,000 range. The price action coincided with worsening conditions for tech stocks, including Chinese giant Tencent, which is expected to post its first-ever quarterly revenue decline. According to analysts, the Chinese gaming and social media conglomerate is expected to post quarterly earnings around $19.5 billion, which is 4% lower than the previous year. Moreover, on Aug. 16, …
Bitcoin / Aug. 16, 2022
Bitcoin price corrected, but bulls are positioned to profit in Friday’s $580M BTC options expiry
Bitcoin (BTC) price has held above $20,700 for 4 days, fueling bulls' hope for another leg up to $23,000 or even $25,000. Behind the optimistic move was a decline in inflationary pressure, confirmed by the December 2022 wholesale prices for goods on Jan. 18. The United States producer price index, which measures final demand prices across hundreds of categories also declined 0.5% versus the previous month. Eurozone inflation also came in at 9.2% year-on-year in December 2022, marking the second consecutive decline from October's 10.7% record high. A milder-than-expected winter reduced the risk of a gas shortages and softened energy …
Bitcoin / Jan. 19, 2023