Bitcoin traders expect swings on US$11 billion options expiry

The contracts expiring Oct 30 account for roughly a third of all outstanding Bitcoin options on the trading platform Deribit.

Bitcoin traders are bracing for potentially sharper price swings as US$11 billion (S$14.09 billion) of options expire this week, just days before US midterm elections that could add further uncertainty to crypto markets.

The contracts expiring Oct 30 account for roughly a third of all outstanding Bitcoin options on the trading platform Deribit. Options give holders the right to buy or sell Bitcoin at a set price.

The largest cryptocurrency has been under pressure after falling below US$80,000 on Oct 26, a level it has hovered around this week. It fell as much as 2% on Oct 29 and was trading around US$79,900 as of 8.30am in London.

Many of the expiring contracts are bets on prices that look unreachable in the near term.

Options to buy Bitcoin outnumber those to sell it, with large concentrations at the US$90,000, US$95,000 and US$100,000 levels.

The more uncertain risk is for holders of contracts tied to prices closer to where Bitcoin is trading today. As the cryptocurrency moves, dealers need to buy or sell to offset their exposure.

About 70% of the expiring options’ gamma – a measure of how sensitive dealers’ hedging needs are to Bitcoin price moves – is concentrated between US$75,000 and US$82,000, according to Adam Haeems, head of asset management at Tesseract Group.

Below the US$80,000 strike price, options to sell Bitcoin outnumber those to buy it by more than two to one.

Public data does not reveal which side of those trades dealers hold, Haeems said.

If dealers are short, their hedging could accelerate a fall through the range of US$75,000 to US$78,000, he said, while long traders could help cushion the decline.

Greater volatility could come after Oct 30. Investors who sell options against their Bitcoin holdings typically sell a new batch as the old ones expire.