This heavily leveraged market is about to witness a major option expire, adding to the year-end excitement. A derivative contract, or an option, grants the buyer the right. To purchase or sell an underlying asset at a future date and price specified by the buyer. A call grants the ability to purchase, while a put confers the right to sell.
This next Friday at 8:00 UTC, the crypto exchange Decibit will see. The expiration of 146,000 Record Bitcoin Expiry options contracts, with a total value of over $14 billion and a size of one BTC for each contract. This is the biggest expiry event Deribit has ever seen. With the notional amount representing 44% of the total open interest for all BTC options across multiple maturities.
Bitcoin Expiry Sparks Volatility
As of this writing, $4 billion worth of Record Bitcoin Expiry representing 28% of the total open interest of $14 billion, were expected to expire “in the money (ITM)” and yield a profit for buyers during Friday’s settlement. As these positions square off or roll over to the next expiry, the market might experience volatility.
Additionally, it should be mentioned that as of Friday’s expiration, there are 0.69 put options for every 10 outstanding calls, indicating a put-call open interest ratio of 7. A disproportionately large number of open interest calls indicates a bias towards the buyer’s side in terms of leverage.
The problem, though, is that the bullish impetus for BTC has faded since last Wednesday’s Fed decision, when Chairman Jerome Powell signalled. A lower rate reduction for 2025 and ruled out the possibility of Fed cryptocurrency purchases.
Volatility Signals Market Uncertainty
As the record expiration date draws near, important. Options-based data reveal that the market is noticeably confused about possible price moves. One way to quantify the ups and downs of an asset’s volatility is by looking at its volatility of volatility, or vol-of-vol. Put, it gauges the amount to which the asset’s volatility or level of price turbulence changes.
A high volume indicates that the volatility of an asset changes a lot over time. When the volume of transactions is high, it usually signifies that asset values are very sensitive. To economic and news data, which causes them to shift quickly and forces aggressive hedging and position adjustment strategies.
ETH Turns Bearish as Volatility Falls
A volatility smile shows the implied volatility of options with different strike prices but the same expiration date. Reducing demand for optimistic bets, the decline in implied volatility for ETH calls suggests a muted picture for Ethereum’s native cryptocurrency. Options skew, which compares the price investors are ready to pay for puts and calls with unequal upside potential, confirms this.
After more than a week of poorer spot performance, ETH’s put-call skew ratio is more strongly bearish (2.06% in favour of puts compared to a more neutral 1.64% towards calls for BTC), according to Melville. Melville added that the overall optimistic outlook. The beginning of the year moderated by the end, but the difference is considerably more pronounced for ETH compared to BTC.
FAQs
How does the Bitcoin expiry impact market volatility?
As $4 billion worth of Bitcoin options expires "in the money," the market could experience volatility, especially as positions settle or rollover.
What is the put-call open interest ratio for Bitcoin and what does it indicate?
The put-call ratio for Bitcoin is 0.69 put options for every 10 calls, indicating a buyer-dominant market with higher leverage.
How does "volatility of volatility" affect the market?
Volatility of volatility measures the asset's price turbulence and high transaction volumes, reflecting sensitivity to economic and news events, potentially triggering rapid market shifts.
Why is Ethereum showing bearish signals?
Ethereum's volatility is declining, with a more bearish put-call skew ratio (2.06% in favor of puts), indicating reduced demand for bullish positions and a muted outlook.
