In the last 24-hours Bitcoin (BTC) price dropped 10% today to test the $30,000 support. This drop below what traders have described as a ‘key’ support occurred just two days ahead of this month’s futures and options expiry.
Despite the record-high $4 billion options expiry being just two days away, both bull and bear sides traded similar sizes today.
Unlike futures contracts, options are divided into two segments. Call (buy) options allow the buyer to acquire BTC at a fixed price on the expiry date. On the other hand, the seller of the instrument will be obliged to make the BTC sale. Generally speaking, they are used on either neutral arbitrage trades or bullish strategies.
The put (sell) options are commonly used as hedge, protection from negative price swings.
To understand how these competing forces are balanced, one should compare the calls and put options size at each expiry price (strike). Options markets are all-or-none, meaning they either have value or become worthless if trading above the call strike price, or the opposite for put option holders.
Aggregate options trade volume in the past 24 hours. Source: Bybt.com
The trading volume over the past 24-hours has favored the more bullish call options by 51%. Nevertheless, this number is polluted by the ultra bullish strikes priced at $37,000 and higher. Considering there’s less than 36 hours before the expiry, these contracts are trading below $50 each.
Excluding these over-optimistic strikes, today’s trading added another $95 million worth of call options open interest below $35,000. On the other hand, the more bearish put options at $27,000 and higher amount to $90 million worth of open interest.
The result of today’s activity has been neutral for Friday’s options expiry. Nevertheless, one should check the overall open interest imbalance separate from today’s movement.
BTC Jan. 29 aggregate options open interest by strike. Source: bybt.com
By excluding the put options below $27,000 and the call options above $35,000, it is easier to estimate the potential impact of Friday’s expiry. Incentives to pump or dump the price by more than 16% become less likely, as the potential gains will seldom surpass the cost.
This data leaves $582 million worth of call options up to $35,000 for the aggregate options expiry on Jan. 29. Meanwhile, the more bearish put options down to $27,000 amount to $422 million. Therefore, there’s a $160 million imbalance favoring the more bullish call options.
Considering the volumes traded over the past 24 hours and the put options open interest, there’s not much gain for bears in pressuring BTC below $29,000, at least from the options market standpoint.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.