Expiration of Bitcoin and Ethereum Options: How Would the Market Change?

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BSV Blockchain and Ethereum options worth $2,7 billion and $1,4 billion, respectively, are set to expire on September 24th. Price swings in the market may occur as this day approaches. Continue reading to see what drives the process, what the MAX PAIN price is, why it should be considered, and what market makers’ behavior may be presently.

How an Option Works: What Is the Advantage for the Buyer/Seller of an Option?

An option contract is a contract in which you agree to purchase or sell the underlying asset at a preset price. This derivative is more complicated financially than futures. An agreement in this scenario likewise comprises two parties, the first of which is the buyer and the second of which is the seller. The major appeal of Bitcoin, Ethereum, and other cryptocurrency options is the possibility to profit from an asset’s future price without having to purchase or sell it at the moment of the transaction.

So Ethereum or Bitcoin options expiry dates are: one week, one month, three months, and two years.

There are two kinds of options: put options and call options. The first offers the option buyer the right to sell the underlying asset at the strike price to the seller. The second provides the buyer of the option the right, but not the responsibility, to purchase the specified quantity of the underlying asset at the striking price. If the buyer chooses to acquire the underlying asset, the seller obtains the right to sell it.

As a result, the options market always has four players: 

  • Those who purchase call options. 
  • Those who trade in call options. 
  • Those who purchase put options. 
  • Those who trade in put options.

The striking price is the price at which the option buyer may purchase (in the case of call options) or sell (in the case of put options) the underlying asset under the current option. A defined amount may be sold or bought by the option seller.

The Significance of Put and Call Option Volumes and Pricing

Because significant players are frequently behind huge volumes, the number of options at a certain price might indirectly predict which direction the asset price will go. The put-call ratio is also crucial.

According to the skew analytical resource’s data, as we approach the expiry date of September 24th, the open interest in Bitcoin options looks like this:

The call options are attracting the most interest: Open interest in call options is 40,882,70. Open interest in put options is 22,284.20.

On the chart, we can observe the MAX PAIN price, which represents the possible depreciation of open options. The Max Pain hypothesis holds that investors will lose money if the price of an asset in the spot market goes in the other direction by the time the options expire. As a result, it is critical to pay attention to significant volume concentration sites.

The MAX PAIN price, according to the chart, is $44 thousand. The majority of call options are worth roughly $64,000. Volume concentrations of $50,000, $88 thousand, and $60 thousand are also found. It is critical to remember that as the expiry date approaches, the peak values may move since the volume of options changes at each price.

On the other hand, the current number of put positions is negative.

Why Is It Vital to Consider Market Makers’ Interests?

As previously stated, put and call positions may go “out of the money,” or unprofitable. This occurs when the underlying asset’s market (spot) price surpasses the strike prices of the sellers and purchasers.

As the expiry date of the options approaches, market makers, or large participants in the options market may [or will] drive spot market prices lower or higher.

Why: They must profitably conclude their transactions. According to the present scenario, it is not beneficial for them to close call options close over the level of the maximum pay price in order to keep the asset’s liquidity in the market in the future.

As a result, if the price of Bitcoin continues to increase, market makers will be required to hedge their OTM short call bets in order to keep the asset value lower until the options expire.

Trading volumes and volatility might theoretically grow or decrease just before the expiry date (as indicated in the dynamics of price movements).

According to IntoTheBlock, the average value of open interest on exchanges over the previous 7 days hit $12.64 billion, with swings ranging from $11.95 billion to $13.21 billion. Since September 6th, volatility has climbed from 35.54% to 45.96%, while the asset price (according to CoinMarketCap) has fallen from +-$51 thousand to +-$44 thousand per Bitcoin. Bitcoin’s price has not risen beyond $48 thousand in the recent week, and it currently tends to move around $40 thousand or higher.

Following the expiry date of the options, it is reasonable that the purpose of market makers is to stay in profit and/or enhance their savings in the asset. As a result, they will be able to sell/buy at either cheap or high prices. Their actions will determine whether the trend is bearish (the price will fall) or bullish (the price will rise).

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