Bitcoin’s (BTC) derivatives continue to grow despite light spot trading over the past two months. The cryptocurrency’s options market is on its way to a record $1 billion monthly expiry this Friday.
At press time, there are 114,700 option contracts (notional value of over $1 billion) set to expire on June 26 across major exchanges – Deribit, CME, Bakkt, OKEx, LedgerX – according to data provided by the crypto derivatives research firm Skew.
Options are derivative contracts that give buyers the right but not obligation to buy or sell the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy and the put option represents the right to sell. With options, traders can make bullish or bearish bets on contracts at various price levels called strikes that expire in different months.
“This is definitely the largest BTC option expiry by a country mile,” said Vishal Shah, an options trader and founder of Polychain Capital-backed derivatives exchange Alpha5.
Meanwhile, Skew CEO Emmanuel Goh said that “with big quarterly expiry, you tend to see some pinning and then the market moving post-expiry.”
Option expiries can influence market direction via a process known as “pinning” in which option traders try to move the spot price to avoid sharp losses.
See also: Miners Are Sending Bitcoins to Exchanges Again – And That May Be Bearish
Holders who benefit from higher prices in the underlying asset – put sellers and call buyers – often take long positions in the spot market to raise prices before the expiration date. On the other hand, put buyers and call sellers, who benefit from a drop in the underlying asset, take short positions in the spot market to keep prices under pressure ahead of expiry.
The tug of war often leads to prices being pinned at or near the strike price where a large number of open positions are concentrated. “Depending on where the open interest [open positions] is scattered, you could be in the game to pin strikes,” Shah told CoinDesk, and added further that, “the bulk of distribution of OI [open interest] in general is skewed slightly higher.”
Indeed, open interest is concentrated at $10,000 and $11,000 strike prices. Meanwhile, on the downside, notable open interest buildup is seen at $9,000 strike.
According to Pankaj Balani, CEO and founder of Singapore-based Delta Exchange, traders have sold a good amount of calls around $10,000-$11,000 strikes for the June expiry.
As a result, $10,000 may act as a stiff resistance heading into expiry. If prices begin to rise, call sellers may take short positions in the spot markets in order to keep the cryptocurrency from scaling the $10,000 mark.
At press time, bitcoin was changing hands near $9,400, representing a 2.5% decline on the day. The cryptocurrency has traded largely in the range of $9,000 to…