Bitcoin price seems to have lost momentum in the past two weeks, and some analysts suggest the bears will remain in control for the foreseeable future.
A look at the market data for derivatives provides a clearer picture of what is happening on the institutional side and how the movements of larger players can affect the spot markets.
After peaking at $ 10.6 billion on Jan. 14, Bitcoin (BTC) open interest declined to $ 8.4 billion. The monthly expiry on January 29th remains in place and accounts for 47% of the options in the game.
While a $ 4 billion expiration could be significant, keep in mind that these options are split between calls (neutral to bullish) and the more bearish put options. Additionally, a few weeks ago it might have made sense to buy BTC for $ 52,000 on January 29, but not that much right now.
BTC options aggregate open positions. Source: Bybt.com
As the data above shows, the Deribit exchange remains the absolute leader with a market share of 83%. However, to understand how eventful this flow can be, it is necessary to adjust the data and compare both calls and place options near the current BTC level of $ 32,000.
It’s too early to panic
Most exchanges offer monthly expiration times and some also offer weekly options for short-term contracts. December 25, 2020 saw the largest decay on record for options contracts worth $ 2.4 billion. This figure represented 31% of all open positions and showed how options are usually spread out over the year.
Aggregated BTC options earn interest until they expire. Source: bybt.com
Data from Bybt.com shows the expiration calendar for January 29th is 107,000 BTC. This expiry date corresponds to 45% of the open positions in the entire options market.
It’s worth noting that not every option will trade when it expires, as some of these strikes now sound inappropriate, especially considering that there are less than five days left.
BTC January 29th aggregated options open interest through strike. Source: bybt.com
When Bitcoin hit its new all-time high of $ 42,000, some ultra-bullish call options were trading, but when the BTC price was adjusted these short-term options became worthless.
Currently, over 68% of the January 29 call options above $ 40,000 should not be included in the calculation. Same goes for the bearish put options at $ 25,000 and below. These make up 76% of the open positions.
Based on this data, an estimated $ 745 million worth of call options remain under $ 40,000 for the total options expire on Jan. 29. Meanwhile, the more bearish put options above $ 25,000 stand at $ 300 million. As a result, the adjusted open interest on Jan. 29 is $ 1.05 billion while the put-to-call ratio is 0.40.
Skew shows that market makers are unwilling to take an upside risk
The analysis of open interest provides data from already completed trades, while the skew indicator monitors the options in real time. This meter is all the more relevant given that BTC was trading below $ 23,500 just thirty days ago. Therefore, the open interest near this level does not indicate a bear market.
When analyzing options, the delta offset of 30% to 20% is the most relevant individual measure. This indicator compares call options (buy) and put options (sell) side by side.
A delta offset of 10% indicates that call options are trading at a slight premium compared to the more bearish / neutral put options. On the flip side, a negative offset increases the cost of the downside protection and is a signal that traders are bearish.
Deribit Bitcoin Options 30-20% Delta Offset. Source: genesisvolatility.io
According to the data shown above, the last time a bearish sentiment occurred was January 10th when Bitcoin price plummeted 15%. That move was followed by an extreme delta offset of 30% to 20% as optimism hit 49, a level not seen in the past 12 months.
Whenever this indicator crosses 20, it reflects the fear of a possible price increase by market makers and professionals and is considered bullish. On the other hand, the current 0-10 range held since Jan 20th is considered neutral.
While a $ 4 billion expiration of options could be worrying, nearly 74% of options are already considered worthless. Regarding the January 29 expiry, the bulls are mostly in control due to their much larger adjusted open interest.
Bears are reasonably comfortable on $ 32,000
January 29th total BTC options open interest per strike. Source: Bybt.com
Although bulls have an overall advantage, the more bearish put options dominate expiry times between $ 33,000 and $ 35,000. Still, this 1,200 BTC contract advantage is more than offset by the imbalance of 1,950 BTC contracts, which favors the call options from $ 28,000 to $ 32,000.
To sum up, as of today, the cops are in complete control of the course of Friday even though the incentives are reasonably balanced between $ 28,000 and $ 35,000. Overall, there isn’t much to be gained from either side to create additional volatility before January 29th.
The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.