US$15 billion options delivery is imminent, is big volatility coming?

Crypto markets rebounded slightly on Thursday, with Bitcoin climbing from an intraday low of $68,855 in the early morning hours to a high of $71,635 in the afternoon, but has since retreated and stabilized around $70,000 ahead of major options expiration on Friday. .

In terms of altcoins, Dogecoin (DOGE) surged nearly 20%, and the current trading price exceeded $0.22 for the first time since December 14, 2021. Bitcoin Cash (BCH) is expected to drop on April 4. It was up 13% before the event.

U.S. stocks continued to rise, with the S&P 500 index rising late in the session. Investors focused on the U.S. personal consumption expenditures (PCE) report. Although inflation is expected to rise slightly, due to the U.S. market The impact on the stock market will be delayed as markets are closed on Good Friday. As of the close, the S&P Index and the Dow Jones Index rose 0.11% and 0.12% respectively, while the Nasdaq fell 0.12%.

$15 Billion Options Set for Delivery

At 8am GMT on Friday, crypto exchange Deribit was valued at $15.2 billion in contract quarters, with Bitcoin options at $9.5 billion, Accounting for 62% of the total notional open interest to be settled, the remainder is Ethereum options.

Data from Deribit shows that this $15 billion expiration is the largest in the history of the exchange and will eliminate Bitcoin and Ethereum. 40% and 43% of total notional open interest.

Open Interest is the dollar value of the number of active contracts at a given time. On Deribit, one options contract represents 1 BTC and 1 ETH. The exchange holds over 85% of the global crypto options market. A call option is a financial contract that gives the buyer the right, but not the obligation, to purchase an asset at a later date at a preset price. A put option gives the seller the right, but not the obligation, to sell.

Markets fear of volatility

Deribit Chief Commercial Officer Luuk Strijers said that a large number of options will expire in the money (ITM), which may bring upward pressure or volatility to the market.

An in-the-money call option (ITM) expires with a strike price below the prevailing market interest rate on the underlying asset. Upon expiration, an ITM call option gives the buyer the right to purchase 1 BTC at a strike price (below the spot market price), thereby generating a profit. An in-the-money put option has a strike price that is higher than the prevailing market interest rate on the underlying asset.

At a market price of about $70,000, $3.9 billion worth of Bitcoin options are set to expire in-the-money, accounting for 41% of the $9.5 billion in total quarterly open interest pending settlement. Likewise, 15% of ETH’s total quarterly open interest of $5.7 billion will expire in-the-money.

#Strijers explained: “These levels are higher than usual, which can also be seen in the lower maximum pain point levels, due of course to the recent price increases. Higher "High levels of ITM expiration could result in potential upward pressure or volatility."

The biggest pain points for BTC and ETH’s quarterly expiration are $50,000 and $2,600 respectively. The biggest pain point is that option buyers lose the most money. The theory is that option sellers (sellers), usually institutions or traders with sufficient capital supplies, want to fix the price near the greatest pain point to cause the maximum loss to the option buyer.

During the last bull run, Bitcoin and Ethereum had been pulling back in the direction of their respective biggest pain points, but resumed their gains after expiration.

Strijers said similar dynamics may be at play, saying: "The market may face upward pressure as expiration removes the biggest pain points lower down the market."

Trading Hedging activities by traders or market makers will increase

David Brickell, head of international distribution at Toronto-based cryptocurrency platform FRNT Financial, said hedging activities by traders or market makers may increase volatility.

David Brickell said in a report: "However, the biggest impact came from market makers' Gamma positions in the activity. Traders were short about $50 million in Gamma, with the majority concentrated at $70,000 The strike price around $70,000. The Gamma position will get larger as expiration approaches, and the forced hedging will increase volatility around $70,000, resulting in some wild moves on both sides of that level."

Gamma measures the change in Delta and measures the sensitivity of the option to changes in the underlying asset price. In other words, Gamma shows the amount of delta hedging a market maker would need to do to keep their net exposure neutral when prices move. Market makers must maintain market-neutral exposures while creating liquidity in the order book and profiting from the bid-ask spread.

When market makers short Gamma or hold a short options position, they buy high and sell low to hedge their books, causing market volatility.

$69,000 support is most critical

Some traders are warning that if Bitcoin falls below the $69,000 level in the coming days, the entire market will correct further.

Старший рыночный аналитик FxPro Алекс Купцикевич заявил в своем отчете: «В краткосрочной перспективе трейдеры будут сосредоточены на том, сможет ли Биткойн повторно протестировать внутридневной минимум вторника около $69 500. Падение ниже этого уровня может сигнализировать о том, что это приведет к более длительным корректировкам».

Криптоаналитик Брюс Пауэрс считает, что в течение последних четырех дней Биткойн находился под давлением вблизи уровня сопротивления 78,6% уровня коррекции Фибоначчи, столкнувшись с сопротивлением на отметке 71 790 пунктов. В течение последних нескольких дней торговля оставалась выше 20-дневной скользящей средней. Восходящий тренд остается неизменным, но медвежья дивергенция RSI предполагает, что откат, возможно, продолжится. Решительный отскок выше максимума этой недели на отметке 71 290 вызовет бычье продолжение восходящего тренда с первоначальной новой максимальной целью около 77 660, целью, определяемой двумя уровнями Фибоначчи.

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