Crypto Countdown: Major Options Expiry Stirs Market Volatility

As the clock ticks toward another significant event in the cryptocurrency markets, traders are gearing up for a major options expiry event set for this Friday at 08:00 UTC. Deribit, the leading crypto derivatives exchange, is preparing for the expiration of bitcoin (BTC) options worth $6.68 billion and ether (ETH) options worth $3.5 billion. This massive expiry, representing over 40% of the $23 billion in cumulative open interest, is poised to inject heightened volatility into the market.

According to Luuk Strijers, chief executive officer at Deribit, this upcoming expiry is particularly noteworthy. “As we approach Friday’s large quarterly expiry, potentially influenced by ‘quadruple witching’ and related volatility in U.S. stock markets, over 25% of Deribit open interest is set to expire in-the-money, equating to over $2.7 billion. The total notional size of the expiry is over $10 billion,” Strijers explained to Coindesk.

Options are financial derivatives that grant the holder the right, but not the obligation, to buy or sell an underlying asset at a set price before the contract expires. A call option provides the right to buy, and a put option provides the right to sell. On Deribit, each options contract represents one unit of BTC or ETH.

Having more than 25% of open interest poised to expire ‘in the money’ indicates that a significant portion of these contracts will likely be profitable at expiration, adding an extra layer of excitement and uncertainty to the market dynamics.

Bitcoin’s price has already felt the pressure this month, dropping nearly 9% and testing lows below $60,000, which in turn has influenced the broader market, dragging ether down by almost 10%. “The recent price drop was caused by miner sales, some pressure from German-seized BTC, and, of course, the imminent transfer of Mt. Gox coins expected in early July,” added Strijers.

Despite the bearish short-term sentiment, the outlook appears more optimistic beyond the immediate horizon. Data from Amberdata reveals that traders are currently favoring calls over puts, betting on potential upside. “While short-term bearish sentiment is evident, traders anticipate a positive shift for bitcoin by July 12 and ETH by July 5, looking at options skew. Trading in the ETH ETF is expected to start in the first week of July,” Strijers noted.

As the market braces for this significant expiry, the interplay of large trading volumes and the strategic closing or rolling over of positions could lead to unexpected price movements, underscoring the inherent unpredictability and excitement of the cryptocurrency markets.