Bitcoin (BTC) options worth $2 billion will expire on Friday, August 27th. Some analysts argue that strong call option buying activity on August 22 was likely the catalyst for the recent $50,000 price test.
Digital asset trading firm QCP Capital mentioned in its market update that one entity has “consistently pushed up (options) prices in recent weeks.” The activity, which took place during the morning session in Asia, aggressively bought up options in blocks of 100 BTC contracts each.
The report also mentions the exhaustion of regulatory concerns in the near term, as crypto-related decisions by the Senate Banking Committee and regulators are unlikely to bear fruit in 2021.
Bears may be analyzing different data
However, the most recent report “The Week On Chain” from blockchain analytics provider Glassnode did include some data regarding Bitcoin on-chain activity. Such analysis found that the number of transactions adjusted by entity did not respond to the ongoing upward action.
In addition, Decentrader, a crypto market intelligence provider, highlighted insufficient trading volume during this recent move to push the BTC price above $52,000.
Friday will be an important test for the $50,000 level, as 4,372 BTC options contracts await the $218 million decision.
The initial call-to-put analysis shows the vast dominance of bullish neutral buy instruments, with 60% more open interest (open me contracts). However, bulls may have been too optimistic, as 68% of their bets were placed on $50,000 or more.
91% of put options are likely to have no value at maturity
On the other hand, 91% of the protection put options were placed at $46,000 or less. These bearish neutral instruments will lose value if Bitcoin trades above that price on Friday. Options expire at 8:00 UTC, so some additional volatility is expected before the event.
Below are the four most likely scenarios given current price levels. The imbalance that favors either side represents the potential profit on expiration, whereas call options are used more often in bullish strategies, while put options are used in neutral trades for bearers.
- Under $45,000: 4,040 calls against 2,500 puts. The net result is a $69 million advantage for bullish-neutral instruments.
- Above $46,000: 6,500 calls against 1,300 puts. The net result is US$ 239 million, favoring neutral and bull instruments.
- Above $48,000: 7,400 calls against 420 puts. The net result is a $335 million advantage for bullish-neutral instruments.
- Above $50,000: 12,000 calls against 35 puts. The net result is a $600 million advantage for bullish-neutral instruments.
The data above shows how many contracts will be available on Friday, depending on the expiration price. There is no way to measure the net result for each market participant, as some investors may be trading more complex strategies, including market neutral ones, using protective call and put options.
These two competing forces will show their strength while the bears will try to minimize damage. In any case, bulls have full control over Friday’s expiration and there appear to be enough incentives to defend the $48,000 level and even try for a more significant gain by pushing the price above $50,000.
Meanwhile, the bears are likely to focus on the September expiration, though bearing in mind that El Salvador is likely to introduce Bitcoin as legal tender next month. In addition, the country is building the infrastructure to support a state-issued Bitcoin wallet called Chivo.
The views and opinions expressed here are solely from the author and do not necessarily reflect the views of the Cointelegraph. Every investment and trading movement involves risk. You must conduct your own research when making a decision.
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