New Bitcoin highs bring bulls into profit on $ 1.2 billion in BTC options that expire this Friday

Every time a new all-time high for Bitcoin (BTC) is hit, expectations are exaggerated. It was no different this time as the price briefly hit $ 69,000 in the early hours of November 9th.

Words are just words, so there is no loss to being overly bullish or bearish, but in the options markets there is a price for placing these bets. For example, on November 10th, a right to buy Bitcoin (call option) at USD 100,000 is traded on December 31st at 0.022 BTC, i.e. USD 1,460. For this privilege, the investor pays an initial fee, also known as a premium.

Analysts and experts are rushing to release their $ 100,000 target after Bitcoin posted the highest monthly close in its history. Nevertheless, History has shown that short-term price estimates rarely work, and it doesn’t matter whether you’re dealing with an anonymous Twitter character or a seasoned crypto fund manager.

Bitcoin price estimates are often far away

New Bitcoin highs bring bulls into profit on $ 1.2 billion in BTC options that expire this Friday
New Bitcoin highs bring bulls into profit on $ 1.2 billion in BTC options that expire this Friday

Although he is a widely successful venture capitalist, Tim Draper’s price prediction of USD 250,000 for 2020 was 88% incorrect. Even popular bank analysts can go wrong, according to a November 2020 Citibank FX Wire “Market Comment” citing a potential high of $ 318,000 in 2021. However, with 50 days to the end of the year, some of these prophecies may come true, but most of them are still nothing more than random numbers.

The bears may be on the lookout for regulatory hurdles, for example Singapore is the last region to prohibit crypto derivatives trading. Huobi Global announced on Tuesday that it would close the accounts of all Singapore-based users by the end of March 2022. In September, the Thai Securities and Exchange Commission also recommended revoking Huobi’s local operating license.

An initial analysis based on the open interest of the call and put options shows a balanced situation for the expiration of USD 1.3 billion in options on November 12th.

Added open interest in Bitcoin options for November 12th. Source: Bybt

At a glance, call options of 630 million dominate.

However, the 1.12 call / put ratio is misleading as the recent rally is likely to undo most bearish bets. For example, if the price of Bitcoin is above $ 66,000 at 8:00 a.m. UTC on November 12, virtually all sales instruments will lose their value. There is no value in selling Bitcoin at $ 58,000 or $ 62,000 when it is trading above that price.

The cops could aim for a profit of $ 410 million over $ 70,000

Here are the four most likely scenarios for the November 12th expiration. The imbalance favoring one side or the other represents the theoretical profit. In short, depending on the expiry price, the amount varies in buy and sell contracts:

  • Between $ 64,000 and $ 66,000: 2,440 call options vs. 310 put options. The net result is USD 135 million in favor of purchase instruments (bullish).
  • Between $ 66,000 and $ 68,000: 3,430 call options vs. 50 put options. The net result is USD 225 million in favor of purchase instruments (bullish).
  • Between $ 68,000 and $ 70,000: 44,070 call options versus 10 put options. The net result is USD 305 million in favor of purchase instruments (bullish).
  • Over $ 70,000: 5,820 call options compared to no put options. The net result is total dominance, with the bulls raking in a profit of $ 410 million.

This gross estimate takes into account that call options are used exclusively in bullish bets, while put options are used in neutral or bearish operations. More sophisticated investment strategies are not taken into account in this simplification.

For example, a trader could have sold a put option, effectively getting a positive exposure to Bitcoin above a certain price. Unfortunately, there is no easy way to gauge this effect.

The bears’ best hopes proved ineffective

After rising 19% in 30 days, the bulls dominate the weekly run on November 12th. One factor that may have contributed to this development was the lack of a negative impact on prices after America’s billion dollar infrastructure bill passed the House of Representatives. The bill requires that all digital asset transactions greater than $ 10,000 be reported to the IRS.

Traders should be aware that even bearish news during bull runs has little or no impact on price. Also, the effort it takes bears to push the price down is greater and often ineffective.

The bulls could take advantage of the current situation to push BTC above $ 70,000, resulting in an estimated additional profit of $ 105 million, bringing their grand total to $ 410 million.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Every investment and trading move involves risk, you will need to do your own research when making a decision.

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