Bitcoin (BTC), which has been trading at $44,000, has bounced 11% off the Jan. 10 low of $39,650. Although there are many explanations for recent weakness, none seem to be sufficient to explain the 42% correction since the Nov. 10 high of $69,000.
The U.S. Securities and Exchange Commission issued negative comments on VanEck’s rejection of its physical Bitcoin exchange-traded funds (ETF) at that time (12 November). The regulator cited market manipulation as a result of unregulated exchanges and high trading volumes based on Tether (USDT), stablecoins.
On Dec. 17, U.S. Financial Stability Oversight Council suggested that federal and state regulators examine regulations and tools that could be used to digital assets. BTC prices corrected once more following the December Federal Open Market Committee session (FOMC), which confirmed plans for debt buyback and increased interest rates.
In the derivatives market, if Bitcoin prices fall below $42,000 before Jan. 14, expiry, bears will make a net profit of $75 million on their BTC options.
Bitcoin options for Jan. 14 aggregate open interest Source: Coinglass
The $455 million call options (buy) seem to be outshining the $295m puts. However, the 1.56 call/put ratio is misleading because of the 14% drop in the price over the past three weeks which will likely wipe out most bullish bets.
Only $44 million worth (call or buy) options will be offered at expiry if Bitcoin’s price is below $44,000 at 8:01 UTC on January 14. If Bitcoin is trading below $44,000, the right to purchase Bitcoin at $44,000 is worthless.
If BTC falls below $42,000, bears could make a $75 Million profit
These are the most likely outcomes for the $750million options expiring on January 14. The theoretical profit is represented by the imbalance in favor of each side. The actual outcome of the expiry price will determine the amount of active call (buy) or put (sell) contracts.
Between $40,000 to $43,000: 480 calls against 2,220 put. 75 million dollars favor the put (bear), options. Between $43,000 and $44,000, 1,390 calls vs. 1,130 lets. The net result is balanced between put and call options. Between $44,000 and $46,000, 1,760 calls vs. 6,660 puts. The net result favors the call (bull), options. Between $46,000 and $47,000, 1,220 calls vs. 5,050 puts. The net result favors the call (bull), options.
This rough estimate includes put options used in neutral to bearish bets and only bullish trades. This simplifies investment strategies that are more complicated.
A trader might have sold a put option to gain exposure to Bitcoin at a higher price. Unfortunately, it’s not possible to accurately estimate the effect.
Related: A Bitcoin run to $44K could be a relief bounce according to traders, citing a repeat December’s “nuke”
For a decent win, bulls will need $46,000
Bulls cannot make a significant profit on Jan. 14th expiry if Bitcoin prices remain above $46,000. If the current negative sentiment prevails, bears can easily push the price down by 4% from its current $43,800 level and increase the profit by as much as $75 million, if Bitcoin’s price remains below $42,000
Options markets are currently balanced. This means that bulls and bears have equal chances of Friday’s expiry.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.