Deribit: Bitcoin $5.8 Billion Quarterly Options Expiration May Spark Market Volatility

Cryptocurrency exchange Deribit said the bitcoin market could get busy over the next two days as billions of dollars worth of options contracts are set to expire on Friday, according to CoinDesk. At the time of writing, 90,000 BTC options contracts worth $5.8 billion and $1.9 billion worth of ETH options need to be settled. Of the total $5.8 billion in open Bitcoin positions, about 20% are “in-the-money” contracts, meaning they have favorable strike prices compared to the cryptocurrency's prevailing market rate. A similar positioning is seen in ethereum options. For call options, in-the-money means that the strike price is lower than the prevailing market rate, while the opposite is true for in-the-money put options. Both allow the holder to exercise the right to buy and sell for profit, setting the stage for market volatility.

Luuk Strijers, chief executive officer of Deribit, said in an interview, “About 20 percent of expiring BTC options are in-the-money. This larger expiration could exacerbate market volatility or activity as traders close out or rollover positions, which could also affect prices.” Rollover means closing an existing trade on the upcoming expiration date and opening a new trade on a subsequent expiration date to extend the holding period. In order to profit, sophisticated traders often choose to rollover profitable positions to allow profits to continue to grow.

Market activity is likely to remain strong in the coming months as the SEC's decision to release options linked to the BlackRock Bitcoin ETF (IBIT) could accelerate adoption by institutional investors.Strijers said, “One of the biggest potential drivers is ETF options.The SEC has expressed support, but the Options Clearing Corporation (OCC) and the Commodity Futures Trading Commission (CFTC) have not yet approved them and are unlikely to do so this week.” The way options expiring in the next few months are priced suggests a bullish market.Strijers noted, “After the September expiration date, Bitcoin and Ether have negative put-call skews, which is a bullish indicator because call options are more expensive relative to put options.”