Bitcoin (BTC) and Ether (ETH) options contracts worth a combined $2.4 billion are set to expire on May 3, potentially leading to increased market volatility.
A Bitcoin options contract allows investors to speculate on the price movements of Bitcoin without actually owning the cryptocurrency. There are two types of options: call and put options. Call options give investors the right to buy a cryptocurrency at a specific price before a certain date, while put options allow investors to sell a cryptocurrency at a predetermined price before the expiry date.
The put/call ratio is often used by investors to gauge the overall market sentiment. If traders are buying more puts than calls, it is considered bearish, while if they are buying more calls than puts, it is considered bullish. A put-to-call ratio below 0.7 is considered bullish, while a ratio above 1 is seen as bearish.
On May 3, a total of 23,367 Bitcoin contracts worth $1.39 billion will expire. Data from the Deribit exchange shows that the put-to-call ratio for Bitcoin options contracts is currently at 0.5, with a maximum pain point of $61,000. The maximum pain point refers to the price at which the asset will cause the greatest number of holders to incur financial losses.
Similarly, a total of 334,248 Ether contracts with a notional value of $1 billion are expected to expire on Friday. These expiring contracts have a put-to-call ratio of 0.37 and a maximum pain point of $3,000.
The expiry of options contracts has historically been followed by short-term price volatility in the spot crypto market. Both Bitcoin and Ether have experienced bearish pressure in the past couple of weeks, with Bitcoin falling below $60,000 and Ether dropping below $2,900. However, the crypto market often bounces back from options-driven volatility within a few days of expiry.