Bitcoin bulls control Friday’s $1.7B monthly options expiry

July 29, 2021 Coin Telegraph

<div>Bitcoin bulls control Friday's .7B monthly options expiry</div>

Bitcoin's surge above $40,000 boosted the bulls' advantage in this month's $1.7 billion options expiry.

On Friday, July 30, a total of 42,850 Bitcoin (BTC) option contracts ($1.7 billion) are set to expire. This might be the first time since the May 21 weekly expiry that bulls will be able to profit from the $40,000 call (buy) options.

The most recent surge in price may have been prompted by the rumor that Amazon would accept crypto payments, but after the e-commerce giant denied these rumors, BTC has held relatively steady.

According to options markets, regardless of the reason behind the recent market strength, a few incentives are in place for bulls to sustain the $40,000 level.

*Aggregate July 30 Bitcoin option open interest by strike. Source: Bybt.com*

While the initial analysis favors the neutral-to-bullish call options by 21% according to the call-to-put ratio, a decent number of those bets were placed at $45,000 and higher strikes. These options are almost worthless with less than 14 hours until maturity.

Bulls are in complete control

Bears were overconfident for the monthly expiry and 87% of the neutral-to-bearish put options have been placed at $39,000 or lower. If bears are to suppress the price below this level on July 30, a total of $105 million put options will be available.

Meanwhile, the neutral-to-bullish call options below $39,000 amount to $320 million. The net result is a $215 million advantage favoring the neutral-to-bullish call options.

Sustaining the price above $40,000 on July 30 would increase the bulls' lead by $140 million. This difference seems enough to justify a price push above that level, at least until 8:00 am UTC when Deribit expiry takes place.

July future contracts also exert some influence

Bitcoin futures expiries occur simultaneously, but unlike options, longs and shorts are evenly matched at all times.

An aggregate of $650 million in BTC futures is set to expire this Friday, but this will largely depend on the CME's $455 million because traders might close their position before the expiry, which happens on Friday at 3:00 pm UTC.

At the moment, the options market data largely favors bulls, at least for the short-term.

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.

Backwardation in Bitcoin futures contracts shows pro investors lack confidence

July 6, 2021 Coin Telegraph

backwardation

BTC traders are still searching for a bottom, but derivatives metrics show sentiment is negative and even the rally to $40,000 had little impact.

Bitcoin (BTC) might have tested the $40,000 support in mid-July, but according to various derivatives metrics, there has not been a significant change in investor optimism.

This situation either means that price is not what they are looking to mark the end of the current bear market, or that most traders are still underwater at $40,000.

One of the best measures of optimism is the futures market premium, which measures the gap between longer-term contracts and the current spot market levels. In healthy markets, a 5% to 15% annualized premium is expected. However, during bearish markets this indicator fades or turns negative, a situation known as backwardation, and an alarming red flag.

*Huobi 1-month Bitcoin futures basis. Source: Skew*

According to the chart above, the 1-month futures contract has been unable to sustain an annualized premium above 5% since June 18. There have even been some periods of backwardation, including the most recent one on July 5.

There is, of course, the possibility that derivatives markets could decouple from regular spot markets. Maybe investors are unwilling to take the exchange risk, as futures contracts require margin deposits.

Could spot and derivatives markets diverge?

To understand whether the bearish signals seen in derivatives are explicitly tied to these instruments, one should analyze spot market volumes. Typically, bearish markets will present lower trading activity a couple of weeks after the price crash.

*Bitcoin market cap (above) and aggregative trading volume, in USD billion. Source: TradingView*

As predicted, the traded volume peaked in late May but more than halved a couple of weeks later. Although this cannot be deemed a bearish indicator by itself, it expresses a lack of interest in trading at the current levels.

This movement might happen when buyers are scared and, as a result, place scaling bids below market levels, or when sellers have been exhausted. Unfortunately, there's no way to know until a decent amount of volume trades outside of the $650 billion market capitalization area.

Options markets can assist in confirming bearish sentiment

However, there's another way to gauge professional traders' optimism. The 25% delta skew compares similar call (buy) and put (sell) options. When fear is prevalent, the metric will turn positive as the protective put options premium is higher than similar risk call options.

The opposite holds when market makers are bullish, causing the 25% delta skew indicator to shift to the negative area.

*Deribit Bitcoin options 25% delta skew. Source: laevitas.ch*

A 25% delta skew ranging from negative 10% to positive 10% is usually deemed neutral. However, the indicator has been above such a range since June 30, indicating fear from arbitrage desks and market markets.

The last time this indicator showed a bullish sentiment was on April 14, the exact day of the $64,900 all-time high.

Considering that none of the derivatives indicators showed signs of bullishness even as Bitcoin price held above $40,000 on June 15, there is reason to believe that investors are not comfortable opening long positions right now. It remains unknown what will trigger a sentiment change, but it will certainly take more than a single 10% rally.

Data shows Bitcoin bears dominate Friday’s $2.5B BTC options expiry

June 21, 2021 Coin Telegraph

<div>Data shows Bitcoin bears dominate Friday's .5B BTC options expiry</div>

Ban

Bears have a potential $450 million lead if Bitcoin fails to hold $32,000 until June 25.

Bitcoin (BTC) price dropped roughly 22% over the past 7 days, retesting the $31,700 area for the second time in June. The most pressing news for the negative performance has been China supposedly cracking down bank accounts of over-the-counter desks, according to some analysts:

China cracking down on the bank accounts of #bitcoin OTC desks, this is getting serious!!!
— Lark Davis (@TheCryptoLark) June 21, 2021

However, as reported by Cointelegraph, Bitcoin's hash rate dropping nearly 50% to an 8-month low could also have played a vital role in the price correction. Not even MicroStrategy's recent $489 million purchase was enough to sustain the $35,000 support.

The movement raised suspicions that the June 25 options and futures expiry could also be behind the move. After all, this month will potentially settle $2.5 billion worth of options and another $2 billion in futures contracts.

Currently, the CME futures represent nearly half of the futures open interest, although historically, most investors roll over their position during the last week of trading.

Market makers and arbitrage desks tend to carry a short futures position while simultaneously holding BTC, thus profiting from the premium to regular spot exchange markets. Meanwhile, large asset managers such as Tudor Investments carry long futures exposure.

However, there is no gain in rolling an option contract that is already worthless. With less than five days until expiry, a right to buy Bitcoin (call) at $44,000 is trading at $20.

*Bitcoin options aggregate open interest for June 25. Source: Bybt*

The initial picture favors bulls, as the neutral-to-bullish call (buy) options contracts are 36% more present for June 25 expiry.

Notice how 87% of the right to buy (call) options have been placed above $34,000. Therefore, if Bitcoin stays below that level, only $200 million worth of open interest from those neutral-to-bullish contracts will partake in the June expiry.

Meanwhile, 46% of the protective put options have been opened above $34,000. This represents a $510 million open interest, giving those neutral-to-bearish contracts a significant advantage.

The $310 million difference favoring bears will be reduced by $190 million if Bitcoin trades above $36,000 on June 25. On the other hand, bears can add another $140 million open interest by pressuring the price below $32,000. The potential $450 million advantage is substantial and should not be ignored.

For the bulls, it might make sense to throw in the towel, lick their wounds, and maybe open new positions using a front spread with puts, allowing gains with no upfront cost besides margin.

Bulls aim to reclaim $40K ahead of Friday’s $520M BTC options expiry

June 17, 2021 Coin Telegraph

Bulls aim to reclaim K ahead of Friday’s 0M BTC options expiry

Bitcoin

Bulls will eliminate 99% of the bear’s protective puts if BTC trades above $40,000 on June 19.

Bitcoin (BTC) bulls have little reason to celebrate the 25% rally over the past nine days. After testing the $31,000 support on June 8, top traders' optimism faded, and even the recent $41,000 high was unable to boost their expectations.

Contrary to market sentiment, the United Kingdom's Financial Conduct Authority has indicated a significant increase in cryptocurrency ownership in the country. A consumer survey found that 2.3 million adults in the U.K. now hold crypto assets, which is up from 1.9 million last year.

Another theory that has been proven wrong is the supposition that whales have been selling, causing the Bitcoin price to remain below $47,000 for 31 days. Counter to this narrative, data from Santiment shows that addresses holding between 100 and 10,000 BTC increased their positions by $367 billion during that period.

Regardless of investors' long-term bullishness, there is $520 million worth of BTC options set to expire at 8:00 am UTC on June 18. While the initial screening shows the neutral-to-bullish call options with a 20% lead, a more granular view provides a different picture.

*Bitcoin June 18 aggregate options expiry by strike. Source: Bybt*

The neutral-to-bullish call (buy) option provides upside price protection to buyers, while the opposite occurs when holding the protective put (sell) options. By measuring each price level's risk exposure, traders can gain insight into how bullish or bearish traders are positioned.

The total number of contracts set to expire on June 18 is 13,400, or $520 million at Bitcoin's current $39,000 price. Bulls lead with 1,240 contracts, equivalent to $48 million, but it depends on what price Bitcoin will stand on Friday morning.

Bulls have a $60 million lead above $38,000

While the initial picture seems bullish, one must consider that the $44,000 call (buy) options are almost worthless, with less than sixteen hours left before expiry. A more balanced situation emerges when those bullish contracts are disregarded.

Less than 2,200 call options have been placed at $38,000 or below, an $84 million open interest. At $40,000, another 1,000 neutral-to-bullish options become active, raising the open interest to $128 million.

On the other hand, the protective put options at $38,000 and higher amount to 750 contracts are worth $28 million. This gives bulls a comfortable $60 million lead and an incentive to move the price above $40,000, increasing the difference to $120 million. In this case, 99% of the protective put options will become worthless.

Bears need to wait for until last minute to salvage their position

Options contracts at Deribit, OKEx, and Bit.com happen exactly at 8:00 am, so there is no benefit in trying to manipulate the price ahead of that event. However, bears may have thrown the towel, concentrating efforts on the monthly expiry on June 25. Bulls, on the other hand, have strong incentives to boost their profits on June 17.

Here’s how traders use call options to increase their Bitcoin holdings

May 29, 2021 Coin Telegraph

Bitcoin

Learn how pro traders use covered call strategies as a low-risk method to increase their Bitcoin holdings.

Crypto traders are drawn to the market by its bombastic growth and lucrative opportunities to make a profit. However, not every investor is seeking volatility or using degenerate leverage levels to gamble at derivatives exchanges.

In fact, stablecoins usually comprise half of the total value locked (TVL) on most decentralized finance (DeFi) applications that focus on yields.

There's a reason why DeFi boomed despite Ethereum network median fees surpassing $10 in May. Institutional investors are desperately seeking fixed income returns as traditional finance seldomly offers yields above 5%. However, it is possible to earn up to 4% per month using Bitcoin (BTC) derivatives on low-risk trades.

*Non-investment grade bonds yield. Source: U.S. Federal Reserve*

Notice how even non-investment grade bonds, far riskier than Treasury Bills, yield below 5%. Meanwhile, the official inflation rate in the United States for the past 12 months has stood at 4.2%.

Paul Cappelli, a portfolio manager at Galaxy Fund Management, recently told Cointelegraph that Bitcoin's "inelastic supply curve and deflationary issuance schedule" make it a "compelling hedge against inflation and poor monetary policies that could lead to cash positions becoming devalued over time."

Centralized services such as Crypto.com, BlockFi, and Nexo will typically yield 5% to 10% per year for stablecoin deposits. To increase the payout, one needs to seek higher risks, which does not necessarily mean a less known exchange or intermediary.

*Stablecoin yields on centralized services. Source: loanscan.io*

However, one can achieve a 2% weekly yield using Bitcoin derivatives. For those instruments, liquidity currently sits at centralized exchanges. Therefore the trader needs to factor in counterparty risk when analyzing such trades.

Selling a covered call can become a semi-fixed income trade

The buyer of a call option can acquire Bitcoin for a fixed price on a set future date. For this privilege, one pays upfront for the call option seller. While the buyer typically uses this instrument as insurance, sellers are usually aiming for semi-fixed income trades.

Each contract has a set expiry date and strike price, so potential gains and losses can be calculated beforehand. This covered call strategy consists of holding Bitcoin and selling call options, preferably 15% to 20% above the current market price.

It would be unfair to call it a fixed income trade as this strategy aims to increase the trader's Bitcoin balance, but it doesn't protect from negative price swings for those measuring returns in USD terms.

For a holder, this strategy does not add risk as the Bitcoin position will remain unchanged even if the price drops.

*Bitcoin June 4 call options markets. Source: Deribit*

Considering that Bitcoin was trading $37,000 when the above data was gathered, a trader could sell the $44,000 call option for June 4, maturing in six days. Depositing a 0.10 BTC margin should be enough to sell 0.30 BTC call option contracts, thereby receiving 0.00243 BTC in advance.

Two outcomes: higher Bitcoin quantity or larger USD position

There are essentially two outcomes, depending on whether Bitcoin trades above or below $44,000 at 8:00 am UTC on June 4. The $44,000 call option will become worthless for any level below this figure, so the option seller keeps the 0.00243 BTC advance payment in addition to the 0.10 BTC margin deposit.

However, if the expiry price is higher than $44,000, then the trader's margin will be used to cover the price difference. At $46,000, the net loss is 0.011 Bitcoin, therefore reducing the margin to 0.089 ($4.094). Meanwhile, at the time of the deposit, the 0.10 Bitcoin margin was worth $3,700.

Indeed the covered call option seller would have made more money by holding the 0.10 Bitcoin from the beginning, as the price increased from $37,000 to $46,000. Nevertheless, by receiving the 0.00243 BTC advanced payment, one will increase the Bitcoin holdings even if the price moves below $37,000.

That 2.4% profit in Bitcoin terms will happen for any expiry below $44,000, which is 18.9% higher than the $37,000 when Deribit option prices were analyzed.

$2.2 Billion Notional in BTC Options Set to Expire on Friday, Bitcoin Contango Has Returned

May 27, 2021 Bitcoin.com

When all-time high? Bitcoin traders lose confidence as BTC price slumps

May 13, 2021 Coin Telegraph

Bitcoin

Bitcoin adoption continues to increase but derivatives data shows retail and professional traders are reluctant to build new bullish positions.

Bitcoin's (BTC) recent price action has disappointed most investors, especially when one considers that the total altcoin market capitalization rallied 24% in nine days to reach a $1.35 trillion all-time high on May 9.

Bitcoin's 62% accumulated gain in 2021 has BTC traders feeling somewhat frustrated with altcoins and meme coins pumping to new daily highs.

*Bitcoin price at Coinbase, USD. Source: TradingView*

On May 10, Fidelity, a $3.8 trillion global asset manager, filed for a Bitcoin exchange-traded fund (ETF) request with the United States Securities and Exchange Commission. Fidelity's Wise Origin Bitcoin (BTC) partnered with the Chicago Board Options Exchange (CBOE), and the SEC's first response window will close in 44 days.

On May 11, Palantir (PLTR), a $30 billion data analytics company founded by billionaire Peter Thiel, announced that it had started to accept Bitcoin payments. The firm is likely to follow in Tesla (TSLA) and MicroStrategy's (MSTR) footsteps by adding BTC to its balance sheet, and the firm could have more than $2 billion in cash on hand for investments.

In other news, the proposed Taproot upgrade aims to make complex transactions cheaper, faster and easier to deploy. More importantly, this upgrade would bring some privacy to multisig and time-lock functions.

Taproot activation will only be given the green light if 90% of all mined blocks include an activation signal ahead of August 11.

However, despite all this positive news, BTC's price action has not taken its usual bullish turn. The most significant immediate hurdle appears to be the lack of a regulatory framework. Joanna Wasick, a partner at law firm BakerHostetler, told Cointelegraph:

"How many people using crypto for payments know exactly what the tax implications are of their payment transactions?"

Retail traders are not demanding excessive leverage for longs

The first evidence that traders are in utter disbelief comes from the extremely modest perpetual funding rate. Futures contracts have an embedded rate that is usually charged every eight hours to ensure no exchange risk imbalances. Even though the buyers' and sellers' open interest is matched at all times, their leverage can vary.

When longs are demanding more leverage, they will be the ones paying the fee. Therefore, the current situation can be interpreted as bullish. The opposite holds when shorts are using more leverage, thus causing a negative funding rate.

*Bitcoin perpetual futures 8-hour funding rate. Source: Bybt*

Take notice of how the current 0.02% rate, equivalent to 1.8% per month, is much smaller than the recent peaks. While professional traders tend to prefer the fixed-month calendar futures, retail dominates perpetual ones, avoiding the expiries' hassle. Therefore, this data shows that there is a lack of appetite since April 17.

The options skew indicator is on the verge of turning bullish

To better understand how pro traders are positioning themselves, investors should look at the options markets. Call options allow the buyer to acquire Bitcoin at a fixed price on contract expiry. On the other hand, put options provide insurance for buyers and protect against price drops.

Whenever market makers and pro traders are leaning bullish, they will demand a higher premium on call (buy) options, which will cause a negative 25% delta skew indicator.

*Bitcoin 30-day options 25% delta skew. Source: laevitas.ch*

A skew indicator between -10 and +10 is deemed neutral, which has been the case since April 15. This data is evidence of a balanced risk assessment from whales and market makers between downside and upside risk.

In line with today's price drop, there is little evidence that option traders are bullish. This data also aligns with the BTC perpetual futures markets.

Bitcoin has managed to close above $50,000 in 65 out of the past 66 days, likely creating a 'comfort zone' for bulls. Therefore, as long as this support stands, there is still hope that Bitcoin will notch a new record-high.

Ethereum Options Trade Volume Exceeds Bitcoin’s, Deribit Introduces a $50K ETH Strike for 2022

May 12, 2021 Bitcoin.com

Sub-$60K monthly close will make Bitcoin’s $3.9B options expiry a non-event

April 28, 2021 Coin Telegraph

Bitcoin

Bitcoin options traders hoped for a $60,000 monthly close, but the balance between calls and puts signal the expiry will be a non-event.

Bitcoin's (BTC) 2021 performance has been impressive, but traders waiting for a record-breaking monthly candle are likely to be disappointed this week.

After peaking at $64,900 on April 14, a jaw-breaking 27% correction followed, causing BTC price to drop to the $46,000 level.

This downside move obliterated more than $9 billion long BTC futures contracts in a swift action that was previously unthinkable to most investors.

Even though the Bitcoin price recovered $5,800 over the past 48-hours, in the options markets, the bulls were not able to take the bears by surprise as both sides are virtually balanced for April 30 expiry.

*Bitcoin (BTC) USD price at Coinbase. Source: TradingView*

The total Bitcoin futures open interest just three months earlier was $11 billion, although this record-high took place on April 13 at $27.7 billion. Nevertheless, this shows how meaningful the recent price correction impact was.

Meanwhile, options markets operate on a different basis as the contract buyer pays the premium upfront. Therefore, there is no forceful liquidation risk for the holder. While the call (buy) option provides its buyer upside price protection, the put option does the opposite.

Therefore, those seeking neutral-to-bearish strategies will rely primarily on put options. On the other hand, call options are more commonly used for bullish traders.

Although some exchanges offer weekly options contracts, the monthly ones usually draw larger volumes. April will be no different, with 72,000 BTC option contracts worth $3.9 billion at the current $54,500 price are set to expire.

*Aggregate BTC options open interest by expiry. Source: Bybt*

Take notice of how dominant April's options are as opposed to May or September. While the neutral-to-bullish call options dominate with 41% larger open interest for April 30, a more detailed analysis is needed to interpret this data.

It is worth noting that not every option will trade at expiry, as some of those strikes now sound unreasonable, especially considering there are less than two days left.

Ultra bullish options are now worthless

To understand how these competing forces are balanced, one should compare the calls and put options size at each expiry price (strike).

*April 30 aggregate BTC options open interest. Source: Bybt*

Although these $80,000 to $120,000 call (buy) options might seem outrageous, they are typically used for 'calendar spread' strategies. As previously explained by Cointelegraph, the buyer might profit even if BTC trades well below those strikes.

The ultra-bullish options are now effectively worthless because there is no benefit from gaining the right to acquire BTC for $80,000 on the April 30 expiry. The same could be said for the neutral-to-bearish put options at $48,000 and lower.

Therefore, it is better to assess traders' positioning by excluding these unrealistic strikes.

$54,500 presents a balanced situation

The neutral-to-bullish call options up to $58,000 amount to 9,950 BTC contracts. These are equivalent to $540 million in open interest at the current Bitcoin price. Another 3,100 would enter the scene at $60,000 and higher, generating a $780 million option expiry.

On the other hand, the more bearish put options down to $51,000 total 12,000 BTC contracts, currently worth $650 million in open interest.

If the Bitcoin price manages to plunge below $50,000, another 3,850 put options would also be exercised. This figure represents a potential $700 million open interest for the more bearish options.

At the moment, both calls and puts appear virtually balanced. Considering that a $100 million to $150 million difference is likely not enough to incentivize either side to pressure the price, thus this monthly expiry may be 'uneventful.'

The futures and options expiry at Deribit, OKEx, and Bit.com takes place on April 30 at 8:00 AM UTC. The CME futures and options happen at 3:00 PM UTC.

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.

Over $4 Billion in Bitcoin Options Set to Expire Friday, BTC Derivatives Markets Still Frothy

April 27, 2021 Bitcoin.com

BTC Options

Bulls are in complete control

July future contracts also exert some influence

Could spot and derivatives markets diverge?

Options markets can assist in confirming bearish sentiment

Bulls have a $60 million lead above $38,000

Bears need to wait for until last minute to salvage their position

Selling a covered call can become a semi-fixed income trade

Two outcomes: higher Bitcoin quantity or larger USD position

Retail traders are not demanding excessive leverage for longs

The options skew indicator is on the verge of turning bullish

Ultra bullish options are now worthless

$54,500 presents a balanced situation

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