Crypto traders lean bullish as they hunt for downside protection ahead of Friday’s bitcoin options deadline for billions of dollars.
Bitcoin options worth $8.5 billion will expire on Deribit at 8:00 UTC on Friday, the world’s largest crypto exchange by trading volume and open positions. These figures represent the nominal value in US dollars of active options contracts at press time, with each contract equivalent to one BTC or one ETH.
Since the 2020 COVID crash, the options market has expanded rapidly as institutions increased hedging and return strategies. Options are derivative contracts that let you pay a fee today for a future option on crypto: buy it cheap through a call option or sell it high, even if it’s set at a price that’s locked in now. A call buyer is implicitly bullish on the market, while a put buyer is bearish looking to hedge downside risks.
Traders are positioned bullish before expiration, the ratio of the number of active or open puts to calls shows.
“The put-call ratio for this expiration is 0.56, indicating that overall positioning in the month-end remains skewed toward [bullish] calls,” Sidrah Fariq, global head of retail sales and business development at derivatives exchange Deribit, told CoinDesk in a Telegram chat.
The bullish bias shows that traders expected strong price action in January. However, Bitcoin is up just 2% this month, CoinDesk data shows.
Performance could improve by the end of the month if Wednesday’s Fed rate decision signals more fiat liquidity to come. Like tech stocks, bitcoin tends to benefit from low interest rates and easing.
However, some traders are creating put options ahead of the meeting to hedge potential downside risks ahead of the Fed.
“Recent flow shows heavy use of put diagonal calendar spreads along with concentrated downside activity in January 30 strikes, with notable interest in 88k and 85k Bitcoin puts over the past 24 hours,” Fariq said.
“With markets largely expecting the Federal Reserve to keep interest rates on hold, traders appear to be hedging against short-term volatility around macro events, rather than positioning for a policy-driven selloff,” she explained.
Friday’s event will also see $1.3 billion worth of ether options expire alongside their bitcoin counterparts.
Monthly and quarterly options expirations often trigger short-term fluctuations, but large lasting effects look unlikely as the options market remains small next to spot trading. Bitcoin’s impending expiration of $8.5 billion, for example, is less than 1% of its $1.7 trillion market, too small for long-term shakeups.
