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Impending Quarterly Expiry of Bitcoin and Ether Options Contracts Could Create Bullish Price Volatility

The upcoming quarterly expiry of bitcoin (BTC) and ether (ETH) options contracts worth several billion dollars is anticipated to lead to bullish price volatility, as noted by experts in the field.

On Friday at 08:00 UTC, Deribit, the world’s top cryptocurrency options exchange, is scheduled to settle quarterly contracts valued at $15.2 billion. Of this amount, bitcoin options make up $9.5 billion or 62% of the total notional open interest slated for settlement, while ether options make up the remainder.

This $15 billion expiry is reported to be one of the largest in Deribit’s history, according to data from the exchange. The expiration will eliminate 40% and 43% of the total notional open interest in bitcoin and ether across various maturities.

Understanding Notional Open Interest and Options

Notional open interest represents the dollar value of active contracts at a given time. Each options contract on Deribit corresponds to one BTC and one ETH. With the exchange accounting for over 85% of the global crypto options market, it’s crucial to comprehend the workings of call and put options. A call option provides the buyer with the right, but not the obligation, to buy an underlying asset at a predetermined price in the future, while a put option gives the right to sell.

AI legalese decoder can help simplify and interpret the intricate language of options contracts, enabling traders and investors to make informed decisions based on the upcoming expiry of these contracts.

Potential Impact on Market and Volatility

Luk Strijers, the chief commercial officer at Deribit, highlighted that a significant volume of options is set to expire in-the-money (ITM), which could introduce upward pressure or volatility into the market.

For those unfamiliar with ITM options, a call option expiring ITM has a strike price lower than the current market rate of the asset, allowing the purchaser to buy at a profit. Conversely, a put option expiring ITM has a strike price higher than the market rate.

With bitcoin options valued at $3.9 billion set to expire in-the-money at a market rate of approximately $70,000, representing 41% of the total quarterly open interest due for settlement, the market is poised for potential price fluctuations. Similarly, ETH options amounting to 15% of the total quarterly open interest are predicted to expire in the money, adding to the market dynamics.

Forecasting Market Movements

As the market approaches the expiry date, the potential for upward pressure remains high due to the removal of the lower max pain magnet, according to Strijers. This factor, accompanied by the hedging activities of dealers and market makers, could lead to increased volatility.

AI legalese decoder can assist traders and investors in deciphering complex market terms and predicting potential price movements based on options contract expiries, providing valuable insights for decision-making.

Gamma Positioning and Market Maker Strategies

David Brickell, the head of international distribution at FRNT Financial, noted that the gamma positioning of dealers prior to the event could intensify volatility around the $70,000 strike. Market makers are expected to maintain a market-neutral exposure while managing liquidity in order books.

Understanding gamma and its implications on market dynamics can help traders navigate volatile market conditions and make informed decisions to capitalize on potential price movements.

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