Bitcoin (BTC) rebounded 11% from the low of $ 39,650 reached on January 10 and currently the price is struggling with the level of $ 44,000. There are several explanations for the recent weakness, but none of them seem sufficient to justify the 42% correction that has taken place since the all-time high on November 10 at $ 69,000.
At the time (November 12), negative remarks from the United States Securities and Exchange Commission (SEC) were issued over the rejection of physical Bitcoin from VanEck. exchange-traded funds (ETFs). The regulator cited the inability to avoid market manipulation due to unregulated trading and large trading volume based on Tether (USDT) stablecoin.
Then, on December 17, the US Financial Stability Supervisory Board recommended that review of state and federal regulators regulations and tools that could be applied to digital assets. On January 5, the price of BTC corrected again after the The Federal Reserve’s December FOMC session, which confirmed plans to ease the debt buyback and possibly raise interest rates.
As for the derivatives markets, if the price of Bitcoin trades below $ 42,000 by the January 14 expiration, the bears will have a net profit of $ 75 million on their BTC options.
At first glance, the $ 455 million calls (calls) eclipse the $ 295 million puts, but the call-to-put ratio of 1.56 is misleading because the price drop by 14% over the past three weeks will likely clear most of the bullish bets. .
If the price of Bitcoin stays below $ 44,000 at 8:00 a.m. UTC on January 14, only $ 44 million of those call (buy) options will be available upon expiration. There is no value in the right to buy Bitcoin at $ 44,000 if BTC is trading below that price.
Bears Could Make $ 75 Million Profit If BTC Is Below $ 42,000
Here are the four most likely scenarios for the $ 750 million options expiration on January 14. The imbalance favoring each side represents the theoretical profit. In practice, depending on the expiration price, the quantity of call (buy) and put (sell) contracts that become active varies:
- Between $ 40,000 and $ 43,000: 480 calls against 2,220 put options. The net result is $ 75 million in favor of put (bear) options.
- Between $ 43,000 and $ 44,000: 1,390 calls against 1,130 put options. The net result is balanced between call and put options.
- Between $ 44,000 and $ 46,000: 1,760 calls against 660 puts. The net result is $ 50 million in favor of call options (bull).
- Between $ 46,000 and $ 47,000: 1,220 calls against 520 put options. The net result is $ 125 million in favor of call options (bull).
This raw estimate considers puts used in neutral to bearish bets and calls exclusively in bullish trades. However, this oversimplification ignores more complex investment strategies.
For example, a trader could have sold a put option, thereby gaining positive exposure to Bitcoin (BTC) above a specific price. But, unfortunately, there is no easy way to estimate this effect.
Bulls need $ 46,000 for a decent win
The only way for the bulls to make a significant gain at the January 14 expiration is to keep the price of Bitcoin above $ 46,000. However, if the current negative short-term sentiment prevails, bears could easily drive the price down 4% from the current $ 43,800 and profit up to $ 75 million if the price of Bitcoin stays below $ 42,000. .
Currently, options markets look balanced, giving bulls and bears a level playing field for Friday’s expiration.
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