Bitcoin bulls aim for a post-FOMC win in Friday’s $640M BTC options expiry

The past few months have been painful for Bitcoin (BTC) bulls, but they are not alone. The United States Federal Reserve’s tightening economy policy has led investors to seek protection in cash positions and inflation-protected bonds. 

Surging inflation and recession signals have caused the S&P 500 stock market index to retreat 19% year-to-date. Even gold — previously considered a safe asset — is suffering the consequences, trading down 20% from its all-time high.

The increasing costs of a home mortgage added fear that a housing crisis might be underway. Since the FED started raising interest rates in March, borrowing costs have gone up and up, and mortgage rates have reached multi-decade highs.

Regardless of the prevailing bearish sentiment, Bitcoin bulls could still profit by $270 million on Friday’s options expiry.

$640 million in options expire on Nov. 4

According to the Nov. 4 options expiry open interest, Bitcoin bears concentrated their bets between $16,000 and $20,000. These levels might seem gloomy right now, but Bitcoin was trading below $19,500 two weeks ago.

At first sight, the $335-million put (sell) options dominate the $305-million call (buy) instruments, but the 0.92 call-to-put ratio does not really tell the whole story. For example, the 7.5% BTC price pump since Oct. 21 wiped out most bearish bets.

A put option gives the buyer a right to sell BTC at a fixed price at 8:00 am UTC on Nov. 4. However, if the market trades above that price, there is no value in holding that derivative contract, so its value goes to zero.

Therefore, if Bitcoin remains above $20,000 at 8:00 am UTC on Nov. 4, only $30 million of those put (sell) options will be available at the expiry.

Bulls will fight to send Bitcoin above $22,000

Here are the four most likely scenarios for Friday’s options expiry. The imbalance favoring each side represents the theoretical profit. In other words, depending on the expiry price, the active quantity of call (buy) and put (sell) contracts varies:

• Between $19,000 and $20,000: 500 calls vs. 5,100 puts. The net result is $90 million favoring the put (bear) instruments.
• Between $20,000 and $21,000: 3,300 calls vs. 1,500 puts. The net result favors the call (bull) instruments by $40 million.
• Between $21,000 and $22,000: 7,500 calls vs. 200 puts. The net result favors bulls by $155 million.
• Between $22,000 and $23,000: 12,200 calls vs. 0 puts. Bulls are completely dominant, profiting $270 million.

This crude estimate considers call options used in bullish bets and put options exclusively in neutral-to-bearish trades. However, this oversimplification disregards more complex investment strategies.

Bears need a sub $20,000 to secure a win

A mere 3% price dump from the current $20,500 level is enough for Bitcoin bears to secure a $90 million profit on the Nov. 4 options expiry. However, these traders have undergone a $780 million liquidation in futures contracts between Oct. 24 and Oct. 28, meaning they might have less margin to subdue bulls’ upward pressure.

For now, Bitcoin bears need to catch short-term negative headwinds triggered by tighter macroeconomic conditions to secure a win.

Consequently, options market data slightly favors the call (buy) options, even though a $270 million profit seems distant for BTC bulls.