Bitcoin options data shows BTC price below $17,000 gives bears a $200 million payday on Friday



bitcoin (BTC) fell below $16,000 on November 9, dragging the price to its lowest level in two years. The 2-day correction totaled a 27% downtrend and wiped out $352 million in leveraged long (buy) futures.

As of today, the price of Bitcoin is down 65% for 2022, but comparing its price action with the biggest tech companies in the world is key. For example, Meta Platforms (META) is down 70% YTD and Snap Inc. (SNAP) is down 80%. Additionally, CloudFare (NET) lost 71% in 2022, followed by Roblox Corporation (RBLX) and Snapchat (SNAP), both down 70%.

Inflationary pressures and fears of a global recession drove investors away from riskier assets. This protective move pushed the 5-year US Treasury yield to 4.33% earlier in November, its highest level in 15 years. Investors are demanding a higher premium for holding government debt, signaling a lack of confidence in the central bank’s ability to curb inflation.

Contagion risks Insolvency of FTX and Alameda Research are the most pressing issues. The trading group managed several cryptocurrency project funds and was the second-largest trading exchange for Bitcoin derivatives.

Bulls were overly optimistic and will suffer the consequences

Open interest for the November 11 options expiry is $710 million, but the actual figure will be lower as the bulls were ill-prepared for prices below $19,000. These traders were overconfident after Bitcoin held above $20,000 for almost two weeks.

Bitcoin options aggregate open interest for Nov. 11. Source: CoinGlass

The call-to-put ratio of 0.83 reflects the imbalance between the call open interest of $320 million and the put options of $390 million. Currently, Bitcoin stands near $17,500, which means that most bullish bets will likely become worthless.

If the price of Bitcoin remains below $18,000 at 8:00 UTC on November 11, only $45 million of these call options will be available. This difference occurs because the right to buy Bitcoin at $18,000 or $19,000 is useless if BTC is trading below that level at expiry.

Bears target less than $17,000 to secure $200 million profit

Below are the three most likely scenarios based on the current price action. The number of option contracts available on November 11 for buy (bullish) and sell (bearish) instruments varies depending on the expiry price. The imbalance in favor of each side constitutes the theoretical gain:

  • Between $16,000 and $18,000: 1,300 calls against 12,900 puts. The bears dominate, taking advantage of $200 million.
  • Between $18,000 and $19,000: 2,500 calls versus 10,200 puts. The net result favors the put (bear) instruments by 140 million dollars.
  • Between $19,000 and $20,000: 3,600 calls against 5,900 puts. The net result favors the put (bear) instruments by 40 million dollars.

This raw estimate considers call options used in bullish bets and put options exclusively in neutral to bearish trades. Even so, this oversimplification fails to account for more complex investment strategies.

For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but unfortunately there is no easy way to estimate this effect.

Related: Grayscale Bitcoin Trust Sees 41% Discount Amid FTX Collapse

The bulls probably have less room to support the price

Bitcoin bulls need to push the price above $19,000 on Friday to avoid a potential loss of $140 million. On the other hand, the bears’ best-case scenario calls for a slight push below $17,000 to maximize their gains.

Bitcoin Bulls Just Had Leveraged Longs of $352 Million liquid in two days, so they might have less margin needed to support the price. In other words, the bears have a head start to pin BTC below $17,000 before the weekly options expiry.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.

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