“29JAN, the monster expiry, will be the biggest expiry Deribit has seen to date!”
So said the bitcoin and ethereum derivatives trading platform, further adding:
“A whopping ~100,000 bitcoin contracts will expire, with a notional value of $3.1 billion.”
The trading platform has seen surging volumes this month as traders utilize options more and more.
Apparently most were quite bullish, with call interest pretty high at $52,000, that means these traders were betting for the right to trade BTC at $52,000.
As it happens, the crypto is currently trading at $32,000, meaning they’re at quite a bit of a loss, but fairing a bit better than the ones that bet for $72,000.
The above looks a bit like Chinese to most people unfamiliar with options, but you can buy the contract if you think it will reach a certain strike price level, or you can sell it if you think it won’t depending on whether there is someone willing to buy your sell.
At $8,000 for example there’s hardly much activity, but there is quite a bit at $36,000 and some are daring even $44,000.
In practice this works a bit like margins but instead of having your whole stack at risk, you risk only the option you put down, presuming you’re not the one offering the option.
The simple example is a house. You put down a deposit of say $10,000 for the option to buy it at $200,000, but you don’t have to buy it.
If the house price doubles from $200,000 to $400,000, you just made $200,000 from just $10,000. If it falls instead, you just lost $10,000.
Making options quite attractive especially as part of a trading strategy, with Deribit being the most liquid because they were the first.
They came to some general attention just in 2019, with it now two years later announcing this $3.1 billion expiry.
The effect of that on the spot price remains to be seen. Many may be using this as a cheap hedge, especially considering their peak volumes were on January 11 when bitcoin’s price fell considerably from $38,000 to $30,000.
One could have easily therefore gone short on spot, and taken the long call option just in case the market moves against them.
If they win on spot, they lose just the fraction put down in the option call. If they get short squeezed instead, they have the option cutting their losses.
The expiry therefore can potentially be bullish as now presumably they’ll have to buy coins if they want to play again.
But how it will work out remains to be seen as the public starts learning and accessing these wizz tools that bankers have been using against us for decades.