Some $7.8 billion worth of bitcoin (BTC) options will expire at the end of the month and, with the largest cryptocurrency trading above the so-called max pain point, it is possible that market makers looking to- maximize their profits will try to reduce it in the coming days.
Data from Deribit, the largest decentralized options exchange, shows up to $6 billion in notional value set to expire in the money, or worthless, when contracts close on Jan. 31 at 08:00 UTC. A full 50% of those are put options, which give holders the right, but not the obligation, to sell BTC at a predetermined price within a certain timer period.
“The highest pain level for this expiry is at $98k, with significant market dynamics expected to influence price movements in the near term,” Deribit CEO Luuk Strijers told CoinDesk. “The recent one revocation of SAB 121 allows banks to custody bitcoin, potentially unlocking new institutional flows as speculation about a bitcoin strategic reserve announcement adds an additional layer of market anticipation”.
Put holders are likely hedging against downside risk or making bearish bets with uncertainty surrounding the inauguration of President Donald Trump.
The highest pain price is where option buyers experience the highest losses, while market makers, the other side of the transaction, benefit greatly. Prices usually tend to rise towards pain highs as expiration approaches, meaning $98,000 is a key level to watch in the coming week.
“Next week Friday’s BTC options expiration will represent a notable event as approximately 74,000 contracts will expire. Total BTC Options notional open interest will be $28 billion if of which, $7.8 billion is set to expire, with approximately 22.6% in-the-money (ITM) , potentially triggering delta hedging flows in the market While, DVOL is currently at 60, which is in line with year-end levels,” Strijers said.
DVOL is the Deribit index for tracking bitcoin implied volatility (IV). Research at CoinDesk noted that IV hit its highest level on Jan. 20 since August as bitcoin tumbled to new all-time highs.
