When Bitcoin’s price experiences significant corrections, analysts and traders often search for reasons behind it. They often point fingers at the derivatives markets, where bears supposedly take advantage of futures contract liquidation levels or anticipate profits from weekly BTC options expiries.
However, the recent range-bound price action of Bitcoin has reduced such talk. But now that murmurs of a trend reversal have resurfaced, let’s examine how whales are positioned in Bitcoin derivatives markets.
Will the $1.35 billion BTC options expiry on May 10 bring volatility?
The recent inability to maintain prices above $65,000 on May 6 is an example of how some market participants blame the weekly options expiry for the recent downtrend. If this were true, based on BTC derivatives metrics, we could expect further downward pressure before the expiry at 8:00 am UTC on May 10.
From a broader perspective, the $1.35 billion options open interest is significant enough to justify the efforts of Bitcoin bears. However, a closer analysis reveals a different scenario. Deribit holds an 84% market share for the May 10 options expiry, so we will primarily focus on data from that exchange. The Chicago Mercantile Exchange (CME), which only offers monthly contracts, has been excluded from this analysis.
It’s important to note that call (buy) and put (sell) options are not always balanced against each other, which is a common feature of such instruments regardless of the underlying asset. Therefore, the first relationship to consider is the volume discrepancy between these instruments. Generally, increased demand for puts indicates a bearish market.
The average BTC options put-to-call volume at Deribit over the past 10 days was 0.60, meaning put (sell) instruments had 40% lower volumes compared to call (buy) options. This has been the norm for the past month. In essence, it’s difficult to justify the idea that bears have set a trap or anticipated Bitcoin’s failure to sustain $65,000 on May 6.
However, one should not take every call option buyer at face value, especially considering there is less than 13 hours left until the actual expiry on May 10. For instance, it’s hard to justify the right to buy Bitcoin at $74,000 or even $90,000 in such a short time. Therefore, when measuring the open interest, we should not take into account those overly optimistic bets.
Although the put-to-call ratio shows a 35% lower demand for put options, bears are at less risk because most of the call instruments were placed at $63,000 and higher. In fact, the open interest for call options below this level is $91 million, which means 87% of them will be worthless on May 10. However, if Bitcoin bulls manage to reestablish the $64,000 support, the open interest for call options will exceed the put instruments by $115 million.
Despite Bitcoin’s price volatility, factors indicate long-term success for BTC.
While bears may have avoided significant losses if Bitcoin had stayed above $65,000, it doesn’t necessarily mean they will come out on top in the end. Put options at $61,500 or higher have a total open interest of $104 million, which is just enough to balance the equation. The best-case scenario for bears requires a Bitcoin price below $61,000 to secure a $100 million advantage.
There is no indication that Bitcoin bears have placed additional bets using BTC options to profit from a price crash before the May 10 expiry. There was no unusual demand between put and call instruments, and there is no specific price level that greatly benefits bears. Whatever strategies were employed, the result is an apparent balanced impact at $62,000, suggesting no price surprises are expected.
This article does not provide investment advice or recommendations. Every investment and trading move carries risks, and readers should conduct their own research before making a decision.