Bitcoin drops after $ 1.6 billion monthly options expire

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Bitcoin faced selling pressure on Friday after Deribit, the world’s largest crypto options exchange by volume and open interest, settled monthly options contracts worth $ 1.6 billion. dollars.

The cryptocurrency went from $ 39,800 to $ 38,500 after 08:00 UTC (04:00 ET), the designated settlement time on Deribit. A total of 41,000 contracts have expired, of which 22,000 were call options and the remainder put options, according to data from Deribit.

While the exact nature of the expiration flows is not yet known, prices frequently become more volatile after expiration.

Related: Why Bitcoin Needs Its Critics: A Conversation With Noelle Acheson

Option expirations have gained prominence this year, with the cryptocurrency gravitating towards the so-called maximum pain point in the lead-up to settlement and seeing noticeable directional activity after expiration. This point is the strike price at which the most open option contracts expire worthless. Sellers, usually institutions, try to bring prices closer to the maximum pain point to minimize their losses.

“There is always additional activity before and immediately after expiration, especially for relatively larger activities like the July expiration,” Luuk Strijers, chief commercial officer of Deribit, told CoinDesk.

During the bull run, bitcoin consistently recorded pullbacks to the maximum pain point before expiration and resumed gains after settlement as shown below.

“When BTC was bullish, we would see sell and increase volatility during the expiration week, then a pump on the expiration,” tweeted an options and algo trader on Thursday who goes by the name from Altcoin Psycho. “This time it’s the opposite. If the prices fall after the expiration, it may be a sign that we are going lower. “

Related: Bitcoin News Roundup for July 30, 2021

The general market mood has been bearish since the start of the month and prices fell below critical support of $ 30,000 on July 20. The cryptocurrency rebounded well above the July expiration maximum pain point of $ 35,000 earlier this week, and is again facing downward pressure. after expiration.

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Data shared by analytics firm Laevitas via Discord shows that there were noticeable put calls at higher strike prices after 08:00 UTC.

Investors typically write call options, which provide insurance against bullish moves, when the underlying asset is expected to fall or consolidate.

A call option gives the buyer the right but not the obligation to buy the underlying asset at a predetermined price on or before a specific date. A put option gives the right to sell.

Bullish flows may return if the cryptocurrency settles above the 100-day moving average (SMA) of $ 40,000. The average has capped gains since Wednesday.

Also Read: Blockchain Data Shows Current Bitcoin Floor Price At $ 37.3,000

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