Bitcoin traders are preparing for heightened volatility as $11 billion in options contracts expire this week. The expiring contracts, set to settle on October 30, represent about a third of all outstanding Bitcoin options on Deribit. These options grant holders the right to buy or sell Bitcoin at predetermined prices. The largest cryptocurrency has faced selling pressure after dropping below $80,000 on Monday, trading around $81,100 on Thursday in Singapore.
Many of the expiring options are bets on prices that seem unattainable in the near term. Options to buy Bitcoin, known as calls, outnumber those to sell, or puts, with significant concentrations at $90,000, $95,000, and $100,000. These higher-priced contracts are now likely to expire worthless. The greater uncertainty lies with options tied to prices closer to Bitcoin's current trading level. As the cryptocurrency moves, dealers must buy or sell to offset their exposure.
About 70% of the expiring options’ gamma, a measure of how sensitive dealers’ hedging needs are to Bitcoin price moves, is concentrated between $75,000 and $82,000. Below the $80,000 strike price, options to sell Bitcoin outnumber those to buy it by more than two to one. Adam Haeems, head of asset management at Tesseract Group, noted that public data doesn’t reveal which side of those trades dealers hold. If dealers are short, their hedging could accelerate a fall through the $75,000 to $78,000 range, while long traders could help cushion the decline.
Greater volatility could emerge after Friday. Investors who sell options against their Bitcoin holdings typically sell a new batch as the old ones expire. However, sellers may now be waiting until after the November 3 US midterm elections, potentially leading to sharper price moves. Caroline Mauron, co-founder of Orbit Markets, suggested that this could result in higher volatility through the election results, as the usual gamma supply dries up.
The outcome of the US midterm elections could shape how much President Donald Trump can advance his pro-crypto agenda, potentially giving Bitcoin another catalyst in either direction. The median year-end forecast for Bitcoin if Republicans keep control of both chambers was $90,800, compared with $76,450 if Democrats take control, according to a Bloomberg News Market Pulse survey. For a split Congress, it was $84,100. Paul Howard, senior director at Wincent, said the elections could spur investors to buy more options to sell around the current Bitcoin price level, protecting them against further losses.