29. November 2023

Volatility Soars as $4.2B Bitcoin Options Expire Friday

Key Points

  • Bitcoin volatility is the highest point since July 2022
  • 45% of stablecoins have flowed out of exchanges in the last four months, reducing liquidity and exacerbating price moves
  • $4.2 billion of Bitcoin options are set to expire on March 31st, with a call/put ratio of 2.09

Background

The market correlation between Bitcoin and other stocks has recently risen after loosing its connection due to banking turmoil that was triggered by the collapse of Silicon Valley Bank. With less liquidity in the markets, violent price movements become more likely, resulting in Bitcoin surging up to $28,000. Adding to this volatility is a record high open interest in Bitcoin options. As of March 31st, a total $4.2 billion worth of these derivatives will expire, with many investors expecting profits from a successful call/put ratio.

Impact on Volatility

The influx of liquidity in the markets accentuates price moves both upwards and downwards. Although some investors may be able to benefit from the recent surge above $28,000, there is also an elevated risk for those who don’t correctly predict where prices will go next. The lack of liquidity further increases this risk as it makes it harder for large traders to enter or exit positions without significantly moving the market.

Options Open Interest at Record Highs

Open interest in Bitcoin options stands at its highest point since November 2021 according to Coinglass data. A bullish outcome would see many traders profiting from these derivatives due to their call/put ratio being higher than current market prices – 97,300 calls compared to just 46,700 puts currently active across various platforms such as Deribit and LedgerX.

Conclusion

                                                                                      
  With so much money expected to flow into these expiring options contracts this Friday coupled with already high levels of volatility and thin liquidity across the board – investors should exercise caution when entering positions despite tempting opportunities that could arise following expiration day