Bears await an ambush opportunity as Bitcoin price plummets and $ 284 million in Bitcoin options on CME expire on Friday.
At the moment, a total open interest (OI) of $ 622 million for Bitcoin futures that expire on Friday makes sense.
A total of $ 100 million in CME Bitcoin options expires this Friday. 58% of these are call options, meaning buyers can buy Bitcoin futures at a fixed price.
When they expire, call options that are 10% or more above the current Bitcoin price are considered worthless. So there is little point in moving this position to October.
CME call options open for September | Source: CME
Each CME contract represents 5 bitcoins and the graph above shows the key levels for call options in September.
Note that 86% of this is set at $ 11,300 or more. As a result, these options currently cost $ 10 or less.
This means that with $ 8 million call options open with interest between $ 10,000 and $ 11,000, the CME expiry will put less pressure on it.
On the other hand, put options in the same area have open interest of up to $ 12 million. Since both call and put options are relatively the same, the overall effect is unlikely. Hence, one needs to review the rest of the exchanges to analyze the effects of option expiration.
As the leader in the options market, Deribit holds a 75% market share, equivalent to an open interest of $ 554 million in Bitcoin options that expire this Friday. This number is evenly divided between the call (buy) and put (sell) options.
September Bitcoin Options Open Interest | Source: Deribit
Unlike CME, Deribit traders are more humble as only 70% of open positions for call options are at $ 11,250 or more in September. A trading range of $ 10,000-11,000 accumulates $ 74 million in call options compared to $ 110 million in put options.
While Deribit’s number is much more important than CME’s, the $ 26 million imbalance seems irrelevant given the daily bitcoin volume of $ 2 billion.
Futures contract expires, but there cannot be an imbalance
Futures contracts are a completely different instrument than options, as buyers and sellers must have equal rights at all times.
Although every contract is the same, perpetual futures (inverse swaps) do not expire. They are simply rebalanced every 8 hours which means it will not affect the expiration date.
On the other hand, some futures exchanges offer regular futures contracts with a monthly term. Unlike the options market, these traders can keep their positions open by transferring them before they expire.
CME has $ 284 million in Bitcoin futures due to expire on Friday, though that number should decrease as traders move into October and November contracts.
OKEx runs the rest of the exchanges at $ 147 million, while Deribit has $ 73 million, Huobi has $ 63 million, and BitMEX has $ 46 million.
Currently, a total of $ 622 million in open interest for Bitcoin futures that expire on Friday makes sense, considering that the spot exchanges (regularly) hold a daily volume of $ 2 billion.
Friday’s CME expiration is no longer a threat
For most of 2018 and 2019, Bitcoin saw a fairly constant price decline before each monthly CME expiration. A recent study has shown that such movements have ceased to exist since October 2019.
To prove that the negative price effect theory of the CME is no longer valid, consider the last three expiration times.
Bitcoin Price Chart | Source: TradingView
June was the only month with a negative performance of 2% before the contract expired. Both July and August, meanwhile, brought positive returns, undermining any negative expectations.
The above data suggests that traders should be less concerned about the CME phasing out, as it did not seem to have had a significant impact in the previous months. It is more likely that the high correlation with the S&P 500 is the primary reason for the negative impact of the CME.
With the 86% worthless CME call options, these buyers will most likely have little appetite for the engagement ahead. Therefore, the general sentiment on Friday should have a negative impact in the future.
OKEx and Deribit’s weekly contracts expire on September 25th at 8:00 a.m. (UTC). On the same day, CME futures expire at 3:00 p.m. (UTC).
According to Cointelegraph