Strong Bitcoin and stocks rally position bulls for victory in Friday’s $860M options expiry
Bitcoin (BTC) bulls have good reason to celebrate the 22% gain in the past week. The price is pushing toward $46,000 and to the surprise of many, the $43,000 level held steady despite the volatility caused by the United States inflation data released on Feb.10.
There have been mixed feelings on the macroeconomic side. For example, retail sales in the Eurozone disappointed on Feb. 4 when the figure showed a 2.0% year-on-year growth versus the 5.1% expectation. while the United States nonfarm payroll abruptly showed a 467,000 jobs increase.
Investors are clearly increasingly concerned about corporate earnings despite the stronger than expected China and U.S. economic growth. In the past few weeks, some big names took a hit, including Meta (FB), Delivery Hero (DHER-DE) and Paypal (PYPL).
Feb. 10’s 7.5% yearly U.S. consumer price index growth will likely reinforce the Federal Reserve’s expectations of at least two interest rate hikes throughout 2022 and not many investors can seek protection in treasuries because the five-year Treasury yield currently stands at 1.9%.
Bitcoin is still a risky asset, but its price is discounted
Considering that the S&P 500 is only 5% shy of its all-time high, Bitcoin’s recent strength should not come as a surprise. Curiously, put (sell) option instruments dominate the Feb. 11 options expiry, but bears were caught by surprise after Bitcoin price stabilized above $43,000 this week.
A broader view using the call-to-put ratio shows a 14% advantage to Bitcoin bears because the $400 million call (buy) instruments have a smaller open interest versus the $460 million put (sell) options. However, the 0.86 call-to-put indicator is deceptive because most bearish bets will become worthless.
For example, if Bitcoin’s price remains above $44,000 at 8:00 am UTC on Feb. 11, only $55 million worth of those put (sell) options will be available. That effect happens because there is no value in the right to sell Bitcoin at $40,000 if it’s trading above that level.
Bulls are aiming for a $300 million profit
Below are the three most likely scenarios based on the current price action. The number of options contracts available on Feb. 11 for bulls (call) and bear (put) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:
- Between $42,000 and $44,000: 4,550 calls vs. 1,750 puts. The net result is $120 million favoring the call (bull) instruments.
- Between $44,000 and $46,000: 6,380 calls vs. 860 puts. The net result favors bulls by $250 million.
- Between $46,000 and $48,000: 7,860 calls vs. 50 puts. The net result favors the call (bull) instruments by $350 million.
This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.
For instance, a trader could have sold a call option, effectively gaining a negative exposure to Bitcoin above a specific price. But unfortunately, there’s no easy way to estimate this effect.
Bears best-case scenario remains unkind
Bitcoin bulls need a small pump above $46,000 to score a $350 million profit on Feb. 11. On the other hand, bears’ best case scenario requires a 4% price drop from the current $45,600 to reduce their loss to $120 million.
Bitcoin bears currently have no reason to add short positions, considering the recent weak corporate data numbers. Therefore, bulls should continue to display strength by pushing the price to $46,000 or higher during Feb. 10’s options expiry.
A $350 million profit might be just what’s needed for bulls to regain confidence and re-open long leverage futures, causing further upward pressure.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.