Panic grips Bitcoin as $3B in options expire. Put options on bitcoin, which are derivatives that provide downside protection. Are becoming more expensive, signaling a pessimistic sentiment. Because key exchanges, including Deribit, are scheduled to settle. Monthly options on Friday, the price volatility is expected to increase.
According to statistics given by the crypto derivatives research firm Skew, the three-month put-call skew. Which gauges the pricing of puts relative to calls. Has turned positive and reached a six-week high of 3 percent.
The fact that the number is positive indicates that put options are attracting higher prices. Or demand than call options or bullish wagers. As of the beginning of the month, the three-month indicator. Was at -5 percent, showing a bullish inclination.
In the same vein, the one-week and one-month put-call skews have witnessed comparable. Increases this month and are showing a negative bias with prints above zero. The six-month put-call skew has shifted to a neutral position.
An increase in the positive skew does not always imply that traders are placing explicit negative bets. Rather, it could indicate that traders are adding downside protection. To long holdings in either the spot or futures markets.
The fact that bitcoin has fallen by 16 percent since setting a record high of $68,990 on Nov. 10. Indicates that the market is fearful. Which would be understandable given the cryptocurrency’s recent performance.
Concerns that the Federal Reserve (Fed) may accelerate the end of its two-year stimulus program. As well as the resulting strength in the dollar, have caused the cryptocurrency to fall in value. The dollar index, which measures the value of the greenback relative to a basket of major fiat currencies.
An estimated 51,900 option contracts worth nearly $3 billion are slated. To expire on Friday, according to data given by Skew. Deribit, the world’s largest cryptocurrency options exchange. Will settle also around $2.5 billion worth of options at 08:00 a.m. UTC on March 31.
The vast majority of open interest concentrated panic grips Bitcoin in call options with strike prices. That are higher than bitcoin’s all-time high. This is the maximum pain, which is the price level at which option buyers. Would suffer the greatest loss if the options were to expire.
As the expiry date approaches, option sellers, often major institutions, said to behave as a magnet. Buying and selling the underlying asset in order to hold it around crucial levels. And also inflict the greatest amount of loss possible on the buyers of those options contracts.
However, while there is no evidence of sellers employing such techniques in the bitcoin market. The cryptocurrency has, in the past, moved in the direction of the maximum pain point. Prior to expiry and gained significant directionality following expiry in the past.
As a result, the possibility of a significant move in the next day or two cannot ruled out. Especially given the low volume that expected owing to the Thanksgiving break.
In the last minutes of trade, bitcoin was trading near $58,200. Signifying a 1.8 percent rise on the day.