Trading Strategies, Altcoins for Bitcoin’s $3 Billion Options Expiry
- A total of $3.2 billion worth of BTC options is set to expire — most without value — this Friday.
- Five top crypto traders and analysts suggest that downside pressure and volatility could rise from here.
- They also shared short-term trading ideas and altcoins that could defy bitcoin’s potential fall.
Despite over $3 billion worth of bitcoin options expiring this Friday, traders and analysts are not expecting a notable impact on the crypto market, but some are bracing for rising volatility and downward pressure on the largest cryptocurrency.
A total of 73,702 options contracts worth $3.2 billion are due for expiry this Friday, according to data provided by Skew. The majority of the contracts are expected to expire without value as call option interest is concentrated at strike prices that are currently above bitcoin spot price ($42,529 as of midday Wednesday) and the majority of put options are positioned at lower strikes, as noted by Armando Aguilar, a digital asset strategist at Fundstrat Global Advisors.
The $50,000 mark has an aggregate interest of 12,700 calls and puts, while the $40,000 and $60,000 levels are the closest prices with the most demand, he added, pointing to the chart below.
Traders are also sensing a lack of hype regarding the upcoming options expiry, according to Patrick Heusser, head of trading at Crypto Finance Brokerage.
“We had some discussions on the desk and also with other traders who trade options,” he told Insider in an email. “If anything we believe that volatility is most probably increasing from current levels.”
Heusser adds that rising volatility could also be linked to potential macro events such as further credit issues from beleaguered Chinese property developer China Evergrande or a surprising announcement by the
to speed up its tapering timeline.
Aguilar agrees that expirations could provide more price volatility to bitcoin on Friday, but analyst consensus expects it to remain within the last 72-hour price range of $40,000 to $45,000, he said.
Faced with macro and regulatory risks as well as technical pressures, bitcoin could have a major downward price move coming out of this expiry, Joseph Edwards, head of research at Enigma Securities, said.
“Volumes have tapered off aggressively as of late, and recent price action has been very reminiscent of September 2019,” he told Insider in an email interview, “and that we could see a deeply negative Q4 overall towards lows at least in the $20,000 area. If it does break upwards, of course, it would mean all-time highs in short order.”
Trading strategies amid rising volatility
As in any market, volatility can be a trader’s best friend.
For those well-versed in options trading, they could look towards options plays on weekly expiry proceeding out of the quarterly, for example, October 1st or 8th, Edwards said.
“Implied volatility on most venues is extremely low for early October right now, though it’s been creeping upwards,” he explained, “and it’s the days after the expiry where we expect things to really start moving.”
Another options strategy that professional traders can deploy is called the “butterfly” trading strategy where they can trade multiple call options on the same expiration date. This strategy allows traders to profit from the upside while limiting losses, Aguilar explained, adding that retail traders could explore arbitrage opportunities.
Altcoins that could defy bitcoin’s potential decline
As Crypto Finance’s Heusser likes to say, whenever there is a technical correction in the market, it’s time to “have your shopping list ready” in order to scoop up thoroughly researched tokens on the cheap.
Enigma Securities’ Edwards believes that “if markets bleed, they will bleed as a group.”
But for those looking for rays of hope, it’s worth keeping an eye on exchange tokens like the FTX token (FTT) and Binance coin (BNB) as they tend to fall less and jump up again more during down-trends. This is because structural plays are seen as safer than speculative ones, he said.
Marcus Sotiriou, a sales trader at UK-based digital asset broker GlobalBlock, also views Avalanche as one of the altcoins that may outperform bitcoin over the coming days and weeks. One of the bullish signs is that the layer-one protocol recently raised $230 million in a private sale of its AVAX token to a group led by Polychain and Three Arrows Capital.
Bitcoin and crypto market outlook ahead
With more demand for downside strikes than upside strikes in the upcoming expiry, there is no doubt that market sentiment is bearish right now, according to Sotiriou.
However, last Friday’s call selling for the month-end contract, which dominated flows, also implies that bitcoin could stay at the sub-$50,000 level at the end of the month and move upward in the months ahead.
“This will likely mean that market makers sell BTC in the futures market to remain hedged against their now long BTC position,” he explained. “In my opinion, this is bullish for options expiry post-Friday, as market makers who are hedged with shorts will have to close their position, which results in buy pressure.”
Steven Ehrlich, the chief executive and co-founder of US-based crypto-asset broker Voyager Digital, similarly sees “a small bull run leading up to Friday” if bitcoin’s spot price remains at current levels.
“If it remains at this level by Friday, investors with in-the-money put options may likely exercise their contracts, which will cause an initial downward pressure on BTC’s price due to oversupply on the sell-side,” he explained. “However, it’s possible we’ll see more buying pressure from call holders to push the price up before expiry.”
In the long term, Erlich does not think that the short-term price volatility will have any impact on the value of bitcoin.
“While it’s possible there may be a price drop at the expiry, many will see this as a trading opportunity,” he said, “and I expect positive price momentum in the long run.”