Here’s Why $16.5K Is Crucial to November’s $1.14B Bitcoin Options Expiration
Bitcoin (BTC) faced a 7.3% drop between November 20 and 21 when it tested the $15,500 support. While the correction seems small, the move has caused $230 million in liquidations in futures contracts. Consequently, leveraged bulls came out ill-prepared for the $1.14 billion monthly options that expired on November 25.
Bitcoin investor sentiment worsened after Genesis Trading, which is part of the Digital Currency Group (DCG) conglomerate, halted payouts at its crypto lending arm on November 16. More importantly, DCG owns fund management company Grayscale, which is responsible for the largest institutional Bitcoin investment vehicle, Grayscale Bitcoin Trust (GBTC).
In addition, Bitcoin miner Core Scientific has warned of “substantial doubt” about its continued operations over the next 12 months given its financial uncertainty. In its quarterly report filed with the United States Securities and Exchange Commission (SEC) on November 22, the firm reported a net loss of $434.8 million in the third quarter of 2022.
Meanwhile, New York Attorney General Letitia James addressed a letter to the members of the US Congress on November 22, recommending blocking the purchase of cryptocurrencies using funds in IRAs and savings plans such as 401(k) and 457 plans.
Despite bulls’ best efforts, Bitcoin has been unable to post a daily close above $17,000 since November 11. This move explains why monthly $1.14 billion Bitcoin options expiring on November 25 could favor bears despite the 6% rally from the $15,500 low.
Most bullish bets are above $18,000
Bitcoin’s steep 27.4% correction after failing to break the $21,500 resistance on Nov. 5 surprised bulls because only 17% of calls for the monthly expiration have been placed below $18,000. Thus, bears are better positioned even if they placed fewer bets.
A broader view using the 1.14 call-to-put ratio shows more bullish bets because call (buy) open interest stands at $610 million versus $530 million put (sell) options. Still, with Bitcoin down 20% in November, most bullish bets are likely to be worthless.
For example, if Bitcoin’s price remains below $17,000 at 08:00 UTC on November 25, only $53 million of these call (call) options will be available. This difference occurs because there is no use for the right to buy Bitcoin above $17,000 if it trades below that level at expiration.
The Bears can secure a profit of $245 million
Below are the four most likely scenarios based on current price action. The number of option contracts available on 25 November for buy (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:
- Between $15,000 and $16,000: 200 calls vs. 16,000 putts. The net result favors bears by $245 million.
- Between $16,000 and $17,000: 3,200 calls vs. 11,900 sets. The net result favors bears by $145 million.
- Between $17,000 and $18,000: 5,600 calls vs. 8800 plasters. Bjørner remains in control and earns $55 million.
- Between $18,000 and $18,500: 9,100 calls vs. 6,500 putts. The net result favors bulls by $50 million.
Related: BTC Price Holds $16K As Analyst Says Bitcoin Fundamentals Are ‘Unchanged’
This rough estimate considers the call options used in bullish plays and the put options exclusively in neutral-to-bearish trades. Yet this oversimplification ignores more complex investment strategies.
Bitcoin bulls need to push the price above $18,000 on November 25 to turn the tables and avoid a potential loss of $245 million. However, Bitcoin bulls recently liquidated long futures positions worth $230 million, so they are less likely to push the price higher in the short term. That said, the most likely scenario for November 15th is $15,000 to $17,000 which provides a decent gain for bears.
The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
