It is the last Friday of the month, which means another major Bitcoin options expiry on Deribit. This time, daily, weekly, monthly, and quarterly contracts worth more than $14.2 billion are set to expire. However, market sentiment has changed significantly over the past week. The number of call options has declined, while the Max Pain Price has also shifted.
If you read my Sunday analysis, you may remember that at the time we were talking about options contracts worth approximately $15.3 billion. Today, however, that figure stands at just $14.2 billion. What caused the difference? The answer could help us better understand the current market sentiment.
First, it is important to remember that on Deribit, one options contract represents one Bitcoin. With 169,354 contracts currently open and Bitcoin trading at around 84,000 USD, simple multiplication gives us a total notional value of approximately $14.2 billion.
On Friday evening, however, Bitcoin was trading at around 81,400 USD. Logically, the notional value should therefore have increased rather than decreased as the price rose. The explanation lies in the number of open contracts. On Sunday, open interest stood at 189,189 options contracts.
Since then, the number of outstanding contracts has fallen, primarily on the call side. Call open interest declined from 122,295 to 91,511 contracts, while put open interest actually increased from 66,894 to 77,843.
As a result, the put/call ratio increased from 0.55 to 0.85, while the Max Pain Price moved to 78,000 USD.
Call Open Interest Has Fallen Sharply in Just One Week
Even though Bitcoin’s price has increased, the value of call options currently in profit has fallen from $3.7 billion to approximately $3 billion. Call options generally benefit from an increase in the price of the underlying asset. The decline therefore suggests that traders may have decided to close their positions or move their exposure to a different expiration date.
This cannot be done through standard early exercise, as options traded on Deribit are European-style contracts, but traders can sell or close their positions on the market.
Comparing Sunday’s data with today’s figures reveals a particularly significant decline in call options with a strike price of 85,000 USD. It appears that some traders took advantage of Bitcoin’s rally earlier this week, when the price climbed as high as 87,000 USD.
At that point, these options moved in the money (ITM). If their holders were not confident that Bitcoin would maintain those price levels, they may have chosen to sell or close the positions while they were profitable.
This could indicate a shift in market sentiment and weakening bullish confidence. The latest development in the Bull Regime Score appears to point in a similar direction.
What Could This Mean for Bitcoin?
Of course, we do not know what the final impact on Bitcoin will be. An option is a contract that gives its holder the right, but not the obligation, to exercise it.
What we do know is that holders of call options worth around $3 billion currently have the right to buy Bitcoin at prices below its current market value. Options sellers may already have purchased the underlying asset as part of their hedging strategy, which could have contributed to Bitcoin’s recent upward movement.
However, we cannot know how many market participants will decide to maintain their Bitcoin exposure and how many will unwind or sell their hedges once the contracts expire.
This means volatility could increase around 10:00 a.m. Central European time, when the options expire, or later in the afternoon as traditional US markets open and American traders become more active.
I will take a closer look at the outcome in Sunday’s analysis, when we will already know how the market reacted.
