Bitcoin price has corrected, but bulls are well positioned to take advantage of Friday’s $580 million BTC options expiry

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Bitcoin (BTC) price held above $20,700 for 4 days, fueling bulls’ hopes for another leg up to $23,000 or even $25,000. Behind this optimistic decision hides a drop in inflationary pressure, confirmed by the wholesale prices of goods for December 2022 on January 18.

The U.S. Producer Price Index, which measures final demand prices across hundreds of categories, also fell 0.5% from the previous month.

Eurozone inflation also stood at 9.2% year-on-year in December 2022, marking the second consecutive decline from October’s record high of 10.7%. A milder-than-expected winter reduced the risk of gas shortages and drove down energy prices, bolstering analysts’ hopes of a “soft landing”. Analysts say a soft landing would avert a deep recession and possibly convince central banks to rein in their interest rate hikes.

On Jan. 20 this week, the $580 million BTC options expiry looks like an easy win for the bulls as the surprise 23% 7-day rally above $21,000 has returned most bets. worthless bears. The recent move has had holders (or hodlers) calling for a market bottom and the potential end of the bear market, but the options market may hold the answer.

Can Bitcoin Options Help Bulls Secure the $20,000 Floor?

It may seem like a distant reality right now, but Bitcoin was trading below $17,500 just 7 days ago. As the weekly options expiration on January 20 approaches, bullish bets are poised to pay off, while bears will see their options become worthless as the deadline looms.

The bears’ main hope is the possibility of the US Federal Reserve (FED) raising interest rates by 50 basis points at the next meeting, but that won’t happen until February 1. The latest U.S. retail sales data showed a 1.1% decline in December, the second straight reduction in spending. The odds are increasingly in favor of a 25 basis point interest rate hike, signaling that the central bank’s efforts to rein in inflation are achieving the expected results.

If the bulls gain on January 20, they will likely add buying pressure and fuel the $20,000 support level.

Bitcoin bears were caught off guard

Open interest for the January 20 options expiry is $580 million, but the actual figure will be lower as the bears were decimated after Bitcoin surged above $20,000. The bulls are in full control, although their payout becomes larger at $21,000 and above.

Bitcoin options aggregate open interest for January 20. Source: Coinglass

The call-to-put ratio of 1.18 reflects the imbalance between the $150 million call open interest and the $125 million put options. If Bitcoin’s price remains above $17,000 at 8:00 UTC on January 13, less than $2 million of these put options will be available. This difference occurs because the right to sell Bitcoin at $16,500 or $15,500 is useless if BTC is trading above that level at expiry.

$21,000 Bitcoin would give the bulls a profit of $220 million

Below are the three most likely scenarios based on the current price action. The number of option contracts available on January 20 for buy (bullish) and sell (bearish) instruments varies depending on the expiry price. The imbalance in favor of each side constitutes the theoretical gain:

Between $19,000 and $20,000: 7,500 calls versus 1,700 puts. The net result favors the call instruments (bull) of 110 million dollars. Between $20,000 and $21,000: 800 calls against 8,100 puts. The net result favors the buying instruments (bullish) by $165 million. The net result favors the bulls by 220 million.

This raw estimate considers call options used in bullish bets and put options exclusively in neutral to bearish trades. Even so, this oversimplification fails to account for more complex investment strategies.

For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but unfortunately there is no easy way to estimate this effect.

Related:Bitcoin sees new 4-month high as US PPI, retail data releases ‘big misses’

Bitcoin bears need to push the price below $20,000 on Friday to minimize the loss. On the other hand, bulls can double their gains by driving the price above $21,000 on January 20 and profiting $220 million.

The 7-day rally to $21,300 liquidated $1.2 billion in leveraged futures (sell) contracts, so they may have less margin needed to rein in Bitcoin’s price.

For now, the bulls are well positioned to take advantage of the weekly BTC options expiry and use the proceeds to defend the $20,000 support.

The views, thoughts and opinions expressed herein are the sole authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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