The crypto market should see a pick up in volatility at the end of this week, as the monthly (BTC) and ether (ETH) options contracts are set to expire this Friday. This comes a day after the U.S. bank holiday Thanksgiving, giving traders an opportunity to be thankful for a potential increase in volatility.
BTC and ETH options contracts worth $9.4 billion and $1.3 billion will expire on the trading exchange Deribit at 08:00 UTC on Nov. 29. An option allows the holder the right, but not the obligation, to buy or sell an underlying asset as a specific price within a certain time period.
According to Deribit data, breaking down the $9.4 billion in notional value in bitcoin that is set to expire on Friday. Over $4.2 billion (45%) of the total notional value is “in-the-money” (ITM). Out of this $4.2 billion, almost 80% of them are calls that are ITM. A call that is ITM is a strike price that is below the current market price, while the opposite can be said for ITM puts that are strikes above the spot price.
As a large amount of call options are ITM this could see a lot of volatility as we get closer to the options expiry, as investors look to close their bets and profit substantially. The volatility was seen last month on Oct. 25, which was the last Friday of the month, which saw a 3% decrease in bitcoin’s as over $4 billion of options expired.
Andre Dragosch, European head of research at Bitwise, told CryptoX that the majority of put open interest is concentrated in the $70,000 strike price, but sees that as a very unlikely outcome.
“As far as the expiry on Friday is concerned you see most of open interest concentrated in calls around $82,000 strike and $70,000 strike in puts. Max pain theory would suggest that we would move towards this range between $70,000 – $82,000 but this seems to be relatively unlikely. My base case remains for some sort of temporary consolidation amid elevated sentiment and high profit-taking but I don’t think that we would move towards this range in anytime soon since supply scarcity is still very much pronounced”.
Diving into the out of the money (OTM) options, they are significantly dominated by puts. Out of the total notional value that is OTM is $5.2 billion (55%) and over $4.1 billion (98%) is in OTM puts. Traders were either hedging against downside risk, or making bearish bets that will most likely not materialize. Leaving investors with significant unrealized losses, that will put less downwards pressure on the market.
Dragosch believes that most of the concentration in puts are likely hedges and not bearish bets.
“BTC open interest is disproportionately concentrated in puts as the put-call open interest ratio is still hovering near the highest level since March 2024. The majority of these expiries will likely rolled over into puts as most of this open interest represents hedges and not outright downside bets in my opinion”, Dragosch argues.
As bitcoin’s price is above $98,000 significantly higher than the max pain price of $78,000. The max pain price is the price point where the option holders experience the greatest losses, while the market makers who are the option sellers achieve maximum profit. Due to the large difference between max pain and the current bitcoin spot price, this is leaving many call options deep in the money. In addition, as the price is so far ahead of the max pain price, market makers may be forced to hedge by purchasing bitcoin which could fuel a further rally potentially taking bitcoin to the psychological level of $100,000.
