A strong Bitcoin and stock rally positions bulls to win Friday’s $860 million options expiry

Recent BTC gains and equities market recovery are bolstering investor confidence and giving bulls the upper hand in Friday’s $860 million options expiry.

Bitcoin (BTC) bulls have reason to rejoice after a 22 percent increase in the last week. The price is approaching $46,000, and to many people’s astonishment, the $43,000 level has remained stable despite the turbulence produced by the United States inflation figures announced on February 10.

On the macroeconomic front, there have been mixed feelings. For example, retail sales in the Eurozone fell short of expectations on Feb. 4 with a 2.0 percent year-on-year increase vs a 5.1 percent increase. while the nonfarm payroll in the United States unexpectedly increased by 467,000 jobs.

Despite stronger-than-expected economic growth in China and the United States, investors are plainly anxious about corporate profitability. Some prominent brands have been targeted in recent weeks, including Meta (FB), Delivery Hero (DHER-DE), and Paypal (PYPL).

Today’s 7.5 percent annual growth in the U.S. consumer price index will almost certainly reinforce the Federal Reserve’s expectation of at least two interest rate hikes in 2022, and few investors can seek refuge in treasuries given the 5-year Treasury yield is currently 1.9 percent.

Bitcoin is still a risky asset, but its price is discounted

Given that the S&P 500 is only 5% away from its all-time high, Bitcoin’s recent surge should come as no surprise. Surprisingly, put (sell) option instruments dominate the Feb. 11 options expiry, but bears were taken off guard this week when Bitcoin price stabilised above $43,000.


A broader picture using the call-to-put ratio shows that Bitcoin bears have a 14 percent lead since the $400 million call (buy) instruments have less open interest than the $460 million put (sell) options. The 0.86 call-to-put indication, on the other hand, is deceiving because most bearish bets will become worthless.

For example, if the price of Bitcoin remains above $44,000 at 8:00 a.m. UTC on February 11, only $55 million worth of put (sell) options will be available. That effect occurs because the right to sell Bitcoin at $40,000 has no value if it is trading over that level.

The Bulls are hoping for a profit of $300 million.

Based on the present price activity, the three most likely scenarios are as follows. The quantity of options contracts available for bulls (calls) and bears (puts) on Feb. 11 vary based on the expiry price. The theoretical profit is the imbalance favouring each side:

  • 4,550 calls vs. 1,750 puts between $42,000 and $44,000. The total result is a $120 million advantage in favour of call (bull) instruments.
  • Between $44,000 and $46,000, there are 6,380 calls and 860 puts. The overall result is $250 million in favour of bulls.
  • Between $46,000 and $48,000, there are 7,860 calls and 50 puts. The overall result is $350 million in favour of call (bull) instruments.

This rough estimate takes into account only call options used in bullish bets and put options used primarily in neutral-to-bearish transactions. Nonetheless, this simplicity excludes more complex investment options.

For example, a trader could have sold a call option, gaining negative exposure to Bitcoin over a certain price. Unfortunately, there is no simple way to calculate this effect.

The Bears’ best-case situation remains unfavourable

Bitcoin bulls only need a modest increase above $46,000 to profit $350 million on February 11. Bears’ best case scenario, on the other hand, demands a 4% price reduction from the present $45,600 to minimise their loss to $120 million.

Given the recent dismal business data reports, Bitcoin bears have little incentive to increase their short holdings. As a result, bulls should continue to demonstrate their power by pushing the price above $46,000 or higher at Friday’s options expiry.

A $350 million profit could be just what bulls need to rebuild confidence and re-open long leverage futures contracts, generating further upward pressure.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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