Bulls and bears offset the advantage before $ 750 million in Bitcoin options expires tomorrow

Data from the derivatives market shows that professional traders are neutral on Bitcoin’s price outlook before $ 750 million options expire on Friday (Jan. 14).

Bitcoin has rebounded 11% from its January 10 low of $ 39,650 and is currently struggling at $ 44,000. There are many explanations for the recent market weakness, but none of them seem sufficient to warrant the 42% correction that has occurred since the all-time high (ATH) of $ 69,000 on November 10th.

Bitcoin price chart | Source: Tradingview

On November 12, 2021, the US Securities and Exchange Commission officially rejected VanEck’s proposal for the physical Bitcoin Exchange Traded Fund (ETF). The regulatory authority considers it impossible to avoid market manipulation due to unregulated exchanges and high trading volumes based on the stablecoin of tether (USDT).

Then, on December 17, 2021, the U.S. Financial Stability Oversight Board recommended that federal and state regulators review the rules and tools that may apply to assets. Bitcoin price corrected again on January 5 after the US Federal Reserve announced Minutes of the Federal Reserve’s December meeting of the Federal Reserve’s Open Market Committee (FOMC) confirmed plans to reduce asset purchases and potentially raise interest rates in 2022.

In terms of the derivatives market, the bears will net up to $ 75 million in net income if bitcoin price trades below $ 42,000 before the options expire on Jan. 14.

Bitcoin Options Open Rate Summary for January 14th | Source: Coinglass

Based on the data in the graph, the $ 455 million call option outperforms the $ 295 million put option, but the 1.56 call-to-put ratio is wrong with the bullish bets.

If Bitcoin price stays below $ 44,000 at 3:00 p.m. on Jan. 14, there will be only $ 44 million available for call options. The right to buy Bitcoin for $ 44,000 would be worthless if it traded below that price.

Bears can make $ 75 million in profit when Bitcoin trades below $ 42,000

Here are the four most likely scenarios that the $ 750 million option will expire on January 14th. An imbalance in favor of both means a theoretical gain. In other words, depending on the price at expiration, the number of active buy and sell contracts varies:

• From $ 40,000 to $ 43,000: 480 buy orders vs. 2,220 sell orders. The net result was $ 75 million in favor of the put (bear).
• From $ 43,000 to $ 44,000: 1,390 buy orders vs. 1,130 sell orders. The net result is the balance between a call and a put.
• From $ 44,000 to $ 46,000: 1,760 buy orders vs. 660 sell orders. The net result is $ 50 million in favor of the call (bull).
• From $ 46,000 to $ 47,000: 1,220 buy orders vs. 520 sell orders. The net result is $ 125 million in favor of the call option (bulls).

This rough estimate takes into account put options used in neutral to bearish bets and calls used in bullish trades only. However, this simplification does not imply any more complex investment strategies.

Bulls have to push Bitcoin to $ 46,000

The only way for the bulls to gain an edge when the option expires is to keep the Bitcoin price above $ 46,000. However, if the current negative short-term sentiment prevails, the bears could easily push the price 4% down from the current $ 43,702 and take profits of up to $ 75 million if Bitcoin price stays below $ 42,000.

For now, options markets appear to be in equilibrium, giving both bulls and bears an equal chance of decay.

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