Bitcoin (BTC) and Ethereum (ETH) options contracts worth a total of $2.4 billion are scheduled to expire on May 3, which could increase market volatility.
Bitcoin options contracts are derivative contracts that allow investors to speculate on Bitcoin price movements without owning the Bitcoin itself.
There are two types of options: call options and put options. A call option gives investors the right to purchase a cryptocurrency at a specific price before a specific date. Put options, on the other hand, allow investors to sell a cryptocurrency at a specific price before the expiration date.
Investors often use the put/call ratio as an indicator to evaluate the overall state of the market. If traders are buying more puts than calls, this is considered a bearish signal, and if traders are buying more calls than puts, market sentiment is considered bullish.
A put-call ratio below 0.7 is considered bullish, while a put-call ratio above 1 is considered a bearish indicator.
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On May 3, 23,367 Bitcoin contracts worth a total of $1.39 billion are scheduled to expire. According to data from the Deribit exchange, the put-call ratio for Bitcoin options contracts is currently at 0.5 and the maximum issue is $61,000. The point of maximum pain is the price that causes financial loss to the holders with the most assets.
Likewise, a total of 334,248 Ether contracts with a notional value of $1 billion are also expected to expire on Friday. This expiring contract has a put-to-call ratio of 0.37 and a maximum problem of $3,000.
Historically, the expiration of options contracts has been followed by short-term price volatility in spot cryptocurrency markets. Bitcoin and Ethereum have experienced bearish pressure over the past few weeks.
BTC price fell below $60,000, registering a weekly correction of nearly 20% following the halving. The price of Ethereum also fell below $2,900. Cryptocurrency markets often recover from options-induced volatility within a few days of expiration.
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