- Deribit is set to witness the expiry of Bitcoin and Ether options exceeding a colossal $11 billion this Friday.
- Both BTC and ETH are trading comfortably above their so-called “max pain” thresholds.
- An expert suggests major price swings are unlikely in the lead-up to expiry.
As 2023 approaches its final quarterly options expiration, Bitcoin [BTC] steadfastly clings above the $40,000 mark, showing resilience despite looming market events.
This Friday at precisely 08:00 UTC, Deribit will see a jaw-dropping expiration involving around $7.7 billion in bitcoin-linked options, alongside an additional $3.5 billion tied to ether [ETH].
“This expiry, surpassing the $11 billion mark, stands as Deribit’s most monumental to date. Moreover, nearly $5 billion of these options will close in the money—the highest recorded figure—which may trigger intensified hedging and heightened market activity,” Luuk Strijers, Deribit’s Chief Commercial Officer, revealed in an interview with CoinDesk.
A Primer on Options: Rights, Risks, and Market Mechanics
Options, those crafty derivative instruments, grant the holder the right—but never the compulsion—to buy or sell an asset at a preset “strike” price when expiry arrives. Calls give the option to buy; puts permit selling. At Deribit, a single option contract equals ownership of one BTC or one ETH. An in-the-money call means the strike price is beneath the spot market rate, whereas for puts, it’s the opposite: the strike price sits above the current market value.
Unpacking This Quarter’s Surge and Investor Behavior
Investor enthusiasm, fueled by bitcoin’s impressive 60% climb and ether’s 43% rise during this quarter alone, has buyers scrambling to load up on calls, pushing in-the-money call options to record-breaking open interest levels.
Per Strijers, “We’ve observed market participants rolling over their positions from the December expiry into contracts maturing in January and beyond, a trend likely to persist through Friday’s settlement.”
Adding, “The action won’t just pause at hedging strategies; clients are shifting positions toward 2024 expirations, a dynamic expected to intensify as expiry approaches, then continue afterward. Post-expiry, the spotlight and market hustle will pivot to the anticipated ETF verdict.”
Spotlight on the ETF Decision: A Potential Market Catalyst
The U.S. Securities and Exchange Commission reportedly set January 10 as the cut-off to either approve or deny a bitcoin spot ETF, a fund investing directly in BTC rather than futures contracts. The crypto community largely anticipates a thumbs-up, which could unleash fresh upward price swings fittingly timed with this historically bullish halving year.
Notably, this expiry marks the highest collective value in Deribit’s history, with nearly $5 billion of options expiring in-the-money—a testament to the growing maturity of crypto derivatives markets.
Decoding Max Pain: The Tug-of-War Between Buyers and Sellers
The accompanying chart illustrates the notional open interest across different strike prices for BTC calls and puts set to expire Friday. It also highlights bitcoin’s “max pain point” (MPP)—the strike where option holders face maximal loss upon expiry.
This theory posits that well-capitalized option sellers (often institutional players) nudge the price toward this MPP, intensifying losses for buyers on expiration day. Past expiries during late 2020 and throughout 2021 saw BTC price oscillations gravitating toward this level before resuming its upward trajectory post-settlement.
Market Outlook: Calm Before the Storm?
Still, market watcher Chang anticipates relative price stability ahead of Friday’s expiry.
“With BTC’s max pain point at $33,000 and ETH’s at $1,900—levels far removed from today’s trading ranges—significant moves toward these points seem improbable. While MPP can occasionally influence price inflection, it’s not a pressing concern right now. Any such drastic shift would likely require a catastrophic global event,” Chang remarked.
“My plan is to scrutinize fresh options trading flows once the big expirations conclude. I sense the market is inching toward its final ignition, with the ultimate significant price move looming imminently,” he added.
