Is there an expected dip Friday? Should we sell off if so?
Bitcoin bulls set to defend $13K as $450M in BTC futures expire Friday
A total of 62K Bitcoin (
BTC) options are set to expire this Friday, and this is equivalent to $830 million in open interest. These massive numbers fail to reflect the fact that 58% of these options are now deemed worthless.
As we approach the expiry date, call (buy) options above the current level begin to depreciate very fast. It is not worth paying $20 for the opportunity to buy BTC at $14.5K on Friday morning. Therefore, rolling options to the next month is not that helpful.
With less than 48 hours to October's expiry, call (buy) options above $14.5K and above face slim odds. The same can be said for the $11.5K put (sell) options which are currently trading below $10 apiece.
Deribit leads with a 70% market share of the options that are still worthy. Currently, there are $134 million worth of call (buy) options from $11.5K to $13.5K, stacked against $45.5 million in put (sell) options from $12.5K to $14.5K. Thus, bulls favor bears by a ratio of 3:1.
Chicago Mercantile Exchange (CME) holds a 26% market share among the October BTC options that still count. The call (buy) options near the current market level totals $72 million, whereas the put (sell) is less than $1 million. This movement is not unlike past expiries as CME option traders are usually extremely bullish.
Therefore, there's currently a $160 million imbalance favoring bulls on BTC option markets. This is a relevant number considering the expiry happens at a set time. OKEx and Deribit options and futures are set to expire at 8:00 AM (UTC) on October 30, and the CME a few hours later at 4:00 PM (UTC).
Futures open interest typically falls near expiry
Many traders believe that Bitcoin futures $5.4 billion open interest is also set to expire on Friday. Most of those contracts are either perpetual (inverse swap) or set for a later date.
This time around, CME leads with $360 million open interest for October, but there's a catch. This notional will drastically reduce ahead of expiry as traders move their positions for upcoming months. As proof of this movement, the CME’s outstanding October open interest was cut by $130 million yesterday.
No matter how big an investor’s win or loss is, rolling over the position for the next expiry is viable. Unlike options markets, futures contracts don't devalue nearing their last trading day.
Futures margin is adjusted daily, meaning, the contract buyer (long) gets paid by the seller (short) when Bitcoin trades up, and the opposite happens if BTC price closes down. Both sides can benefit from rolling over their positions, as long as there's enough margin to maintain it.
For professional traders, futures premium is the most useful indicator to gauge how bullish or bearish those investors are. At the time of writing, OKEx leads the remaining exchanges with $69 million set to expire on Friday, followed by Huobi's $23 million.
This indicator is known as basis, and it usually ranges between a 5% to 15% annualized rate. Whenever the premium is positive, the market is characterized as being in contango. Meanwhile, levels below 5% indicate modest bearishness.
A negative future contracts premium is highly unusual and is usually related to liquidity issues.
