Three-Month Bitcoin Options Expire, Market on Alert

Cryptocurrency exchange Deribit has warned that the bitcoin (BTC) market could experience volatility over the next two days as options contracts worth several billion dollars are set to expire at 08:00 UTC on Friday.

As of writing, 90,000 BTC options contracts worth $5.8 billion are nearing maturity, as are $1.9 billion worth of ether options.

Around 20% of the $5.8 billion total bitcoin open interest is in the money relative to the cryptocurrency’s market rate, and a similar situation exists with ether options.

Deribit CEO Luuk Strijers: “Around 20% of BTC options expiring have turned a profit. This means that market volatility or activity may increase as traders close or roll over their positions. This may also affect prices.”

Activity is likely to remain robust in the coming months as the US SEC’s decision to greenlight options tied to BlackRock’s bitcoin ETF (IBIT) could accelerate institutional adoption.

“One of the big drivers is options on ETFs,” Strijers said. “There’s SEC approval, but no word yet from the OCC and CFTC, and that doesn’t seem likely this week.”

The way options expiring in the coming months are priced suggests a bullish outlook.

“The BTC and ETH put options curve turns negative after the September expiration, which is a bullish indicator as calls are more expensive than puts,” Strijers said.

The bullish trend in the options market appears consistent with the consensus that a renewed rate-cutting cycle from the Fed and similar moves by central banks including the People’s Bank of China will support demand for bitcoin and ether. The rally could gain momentum once bitcoin breaks the $65,200 level, according to analysts at Birtfinex.

Maximum pain is the price level at which option buyers suffer the greatest loss at expiration. A popular theory in traditional markets is that the maximum pain level is often treated as a “magnet” as expiration approaches. This is because option sellers, usually large institutions with ample capital, buy and sell the underlying asset to influence the spot price around the maximum pain point in order to inflict maximum losses on buyers.

Bitcoin’s maximum pain level for Friday’s expiration is $59,000, according to Presto Research analyst Rick Maeda. The current maximum pain point of $59,000, which is about 8% below the spot price, is creating some downward pressure as expiration approaches, Maeda said.

Despite the maximum pain theory being used since 2021, there are still investors who believe that the crypto options market is not yet strong enough to have a significant impact on spot prices.