A significant amount of cryptocurrency options contracts is set to expire this Friday, October 6, 2023. According to data from Skew, a crypto analytics platform, about $730 million worth of Bitcoin and Ethereum options will mature on that date, representing about 18% of the total open interest in the market.
Options are financial derivatives that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price and date. They are used by traders and investors to hedge their risks, speculate on price movements, or generate income from their holdings.
The expiry of options contracts can have an impact on the spot price of the underlying asset, as some traders may choose to exercise their options or roll them over to a later date. Additionally, some traders may adjust their positions in the spot market to avoid or profit from potential price swings caused by the expiry.
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The expiry of $730 million worth of Bitcoin and Ethereum options on Friday could create some volatility in the crypto market, especially if the price of these assets is close to the strike prices of the options. The strike price is the price at which the option can be exercised.
According to Skew, the majority of the Bitcoin options expiring on Friday have strike prices between $50,000 and $60,000, while the majority of the Ethereum options have strike prices between $3,000 and $4,000. As of October 5, 2023, the spot price of Bitcoin was around $54,000 and the spot price of Ethereum was around $3,500.
If the spot price of Bitcoin and Ethereum remains within these ranges until Friday, it could indicate that most of the options will expire out of the money, meaning they will be worthless. This could reduce the selling pressure on the spot market, as traders who sold options would not have to buy back the underlying asset to cover their positions.
However, if the spot price of Bitcoin and Ethereum moves significantly above or below these ranges before Friday, it could trigger a cascade of option exercises or rollovers, which could increase the buying or selling pressure on the spot market. This could create a feedback loop that could amplify the price movements of these assets.
The expiration of options contracts can have a significant impact on the price of the underlying asset, as traders may try to push the price in their favor or close their positions before the deadline. For example, if a trader bought a call option to buy Bitcoin at $50,000 by Friday, and the current price is $48,000, they may try to buy more Bitcoin in the spot market to drive the price up and make their option profitable. Conversely, if a trader sold a put option to sell Ethereum at $3,000 by Friday, and the current price is $3,200, they may try to sell more Ethereum in the spot market to drive the price down and avoid losing money on their option.
The expiration of options contracts can also affect the volatility and liquidity of the crypto market, as large amounts of buying or selling can create price swings and fluctuations in supply and demand. Moreover, the expiration of options contracts can signal a shift in market sentiment and expectations, as traders may adjust their strategies and positions based on the outcome of the options expiry.
Therefore, crypto investors and enthusiasts should pay close attention to the options expiry this Friday, as it may have a significant impact on the price and direction of Bitcoin and Ethereum in the short term. However, it is important to note that options expiry is not the only factor that influences the crypto market, and other events and developments may also affect the price and performance of these digital assets.
Therefore, crypto traders and investors should be aware of the potential impact of the options expiry on Friday and prepare accordingly. They should also monitor other factors that could influence the crypto market, such as regulatory developments, institutional adoption, network upgrades, or technical indicators.