Bitcoin bears are in a good position to profit from the expiration of Bitcoin options this week, particularly if the price remains lower than $18,000.
The price of Bitcoin (BTC) rose above $18,000 for the first time in 34 days, representing a 16.5% increase from its low point of $15,500 on November 21. The rise came after the S&P 500 futures had gained 3% in just three trading days, reclaiming the crucial 4,000 point support level in the process.
Although the price of Bitcoin (BTC) started the day in the bullish camp, investors were keenly anticipating the decision that the Federal Reserve of the United States would make on interest rates, as well as Jerome Powell’s comments. Following the subsequent increase of 50 basis points and Powell’s explanation of why the Fed will maintain its existing policy, investors have strong reason to worry that the price of bitcoin would maintain its recent gains leading up to the expiration of $370 million in options on December 16.
The trend toward tightening of the economy as a whole is forecast to ease slightly, according to analysts and traders. For the benefit of those who are unaware, the Federal Reserve grew its balance sheet from $4.16 trillion in February 2020 to an incredible $8.9 trillion in February 2022.
Since reaching that high point, the authority in charge of monetary policy has been engaged in a process known as “tapering,” in which it has been attempting to rid itself of debt instruments and exchange-traded funds (ETFs). On the other hand, the Federal Reserve’s assets dropped by less than 360 billion dollars during the course of the previous five months.
Bitcoin traders are likely to maintain their pessimism on the possibility of a sustained price movement regardless of the direction the movement takes until there is a better guide on the economic policies of the world’s largest economy.
The majority of Bears’ wagers were put at or below $16,500.
The open interest for the options expiration on December 16 is $370 million, but the actual total will be lower because bears were caught off guard after the rise to $18,000 on December 14. The actual figure will be lower. These investors absolutely missed the mark when they placed bearish bets in the range of $11,000 and $16,500, which, given the current state of the market, seems implausible.
The total number of open positions for Bitcoin options as of December 16 CoinGlass is the original.
The 0.94 call-to-put ratio indicates that there is a balance between the $180 million open interest in calls (buying options) and the $190 million open interest in puts (selling options). However, given that Bitcoin is currently trading near $18,000, it is highly likely that bearish bets will become worthless.
If Bitcoin’s price is still above $18,000 when the market opens on December 16 at 8:00 am UTC, then almost none of these put (sell) options will be an option. This disparity arises due to the fact that a right to sell Bitcoin at $17,000 or $18,000 is rendered useless if BTC moves beyond that level when the contract’s expiration date arrives.
The bulls have the potential to earn up to $155 million.
On the basis of the recent market activity, the following are the four possibilities that are most likely to occur. The quantity of Bitcoin options contracts that can be purchased on December 16 for call (bull) and put (bear) instruments vary based on the price at which the contracts will expire. The potential profit is represented by the imbalance of power that favours each party.
Between $16,500 and $17,500, 1,400 call options and 1,200 put options are being considered. The total amount of calls and puts corresponds to a balanced result.
In the range from $17,500 to $18,000, 3,700 call options and 100 put options were traded. The end outcome is $60 million in favour of the call instruments, which are considered bullish.
In the range from $18,000 to $19,000, there were 6,200 calls but no puts. The end outcome is $115 million in favour of the call instruments, which are considered bullish.
In the range from $19,000 to $19,500, there were 8,100 calls but no puts. The end outcome is $155 million in favour of the call instruments, which are considered bullish.
This is a very rough estimate that takes into account only the put options that are used in bearish bets and only the call options that are utilised in neutral to bullish trades. Having said that, this oversimplification disregards investment ideas that are more complicated.
For instance, a trader may have sold a put option, which would have resulted in the trader having positive exposure to Bitcoin above a certain price; however, regrettably, there is no straightforward method to evaluate the impact of this action.
The FTX contagion is still having an effect on the markets.
It is more simpler to have a negative effect on the price of Bitcoin during bear markets due to the general tone of the newsflow and the outsized effect that it has on the cryptocurrency market.
Recent unfavourable news regarding cryptocurrencies includes reports on a U.S. court filing that demonstrated a “unfair” trading advantage for Alameda Research, the market-making and trading company affiliated with FTX before it went bankrupt.
According to the allegations made by the United States Commodities Futures Trading Commission, Alameda Research had faster trading execution speeds and was free from the “auto-liquidation risk management mechanism” of the exchange.
To increase their profits to $155 million by the 16th of December, the bulls will need a pump above $19,000 according to their best-case scenario. Taking into consideration the ongoing regulatory and contagion risks, this seems unlikely to occur. Bears have a good chance of keeping Bitcoin’s price below $18,000 for the time being, which will allow them to avoid a greater loss.
The views, ideas, and opinions that are presented in this article are solely those of the writers; they do not necessarily reflect or represent the views and opinions held by Cointelegraph.
This post does not contain any recommendations or advice regarding financial investments. Every investment and trading action carries some level of risk, and before making a choice, readers should do their own research in the relevant areas.
Source: Cointelegraph.com
