$10.5B Bitcoin Options Expiry May Reset Market Expectations

Key takeaways:

• Bitcoin bulls need a 9% rally from current levels to take the advantage in Friday’s $10.5 billion options expiry.

• The 90% correlation between Bitcoin and the Nasdaq 100 Index shows that tech investor sentiment drives market confidence.

Bitcoin (BTC) price surged to an eight-day high on Wednesday, successfully forming a double bottom near the $62,500 level. Despite these recent gains, Bitcoin price remains 21% lower than it was one month ago, suggesting bulls are unlikely to come out ahead during Friday’s $10.5 billion monthly BTC options expiry. Whether bulls can flip the tables at the last minute and shift momentum back in their favor remains up in the air.

Deribit remains the dominant leader with a 76% market share, totaling $4.5 billion in call (buy) options and $3.4 billion in put (sell) instruments. OKX follows in second place with $610 million in calls and $385 million in puts, representing 10% of the aggregate total. CME rounded out the top three with $255 million in calls and $287 million in puts, accounting for a 5% market share.

Put options are better positioned despite having less open interest

At first glance, the aggregate put options open interest appears 25% lower than equivalent call options. However, a more granular view reveals that neutral-to-bullish strategies were caught off guard by Bitcoin’s sharp decline below $75,000 in early February. 88% of call options on Deribit will expire worthless if the Bitcoin price remains below $70,000 on Friday.

Even when discarding calls targeting $105,000 and higher, which are typically part of complex multi-leg strategies with lower acquisition costs, only 37% of the remaining bets sit below $75,000. Realistically, this puts the effective call options open interest on Deribit at about $780 million. Given these current conditions, it is worth analyzing whether bearish traders have now overplayed their hand.

$1.44 billion in put options open interest on Deribit targets Bitcoin prices below $60,000, although it is unlikely that bets at $40,000 and $45,000 effectively aimed for those specific levels. Calendar strategies and ratio spreads are typically associated with extreme price targets, as they do not require a price crash to achieve profitability.

Put options at $72,000 and above total $1.15 billion in open interest on Deribit, which is more than enough to offset existing call options. Although Bitcoin’s decline toward $60,000 was likely not tied to macroeconomic trends, the relevance of Nvidia’s (NVDA US) earnings outcome after the US market close on Wednesday should not be understated.

The success of the artificial intelligence sector, particularly the sustainable operational margins of the world’s largest companies, remains decisive for every risk market. History suggests that Bitcoin’s correlation with the stock market seldom lasts long, but the fate of Friday’s $10.5 billion options expiry could be decided by stock market performance.

Related: Bitcoin tops $69.5K after stock market rebound, strong earnings data boost risk appetite

The current 90% correlation between Bitcoin and the Nasdaq 100 Index is clear evidence that the tech play is the leading driver of trader confidence, but as long as Bitcoin price remains below $75,000, the advantage continues to favor put options.

Below are three probable outcomes for Friday’s BTC options expiry at Deribit based on current price trends:

• From $65,000 to $69,000: The net result favors the put (sell) instruments by $1.15 billion.

• From $69,001 to $71,000: The net result favors the put (sell) instruments by $845 million.

• From $71,001 to $74,000: The net result favors the put (sell) instruments by $470 million.

Ultimately, Bitcoin bulls need a 9% rally from the present $68,800 level to flip the tables on the February options expiry.