Bitcoin (BTC) is set to experience its second-largest monthly options expiration of 2024, with total exposure reaching $8.1 billion. The question is, will this be enough to fuel a strong rally towards $70,000? Or will the bearish incentives be too strong to ignore?
The current macroeconomic environment is favorable for risk assets, including Bitcoin, and the September 27 options expiry will be a significant event. Neutral to bullish options holders are well positioned to attract capital if Bitcoin remains above $63,000. However, bears have ample incentive to suppress this advantage by pushing Bitcoin price below $60,000. Therefore, it is important to analyze the position of the options market and the potential net impact of the monthly expiry.
Chinese stocks surged on September 24 after the People’s Bank of China (PBOC) announced plans to lower borrowing costs and inject liquidity into the economy, including by scaling back its mortgage-backed securities program. The PBOC also pledged $113.8 billion to support the stock market, including through share buybacks and repurchases. “There is still room for further easing in the coming months,” Lin Song, ING’s chief economist for Greater China, told Yahoo Finance.
Essentially, China has mirrored the more accommodative U.S. monetary policy that favors riskier assets like Bitcoin. The central bank is stimulating the economy and lowering interest rates, making fixed income investments less attractive and creating inflationary pressures. In this environment, scarce assets like Bitcoin tend to perform better, especially when the S&P 500 is less than 1% off its recent all-time high and home prices in 20 major U.S. cities have risen 5.9% over the past 12 months, according to the Case-Shiller index.
Given these favorable macroeconomic conditions, Bitcoin bulls have reason to believe that the $63,000 level will hold until the September 27 options expiration, and even a move to $65,000 is possible. However, to assess the likelihood of this bullish momentum, it is essential to look at how Bitcoin options traders are positioning ahead of expiration.
Bitcoin Options Open Interest Volume, USD, September 27. Source: Laevitas.ch
In broader terms, the $4.9 billion worth of Bitcoin call (buy) options is 53% larger than the $3.2 billion in open interest in put (sell) options. While this isn’t unusual (crypto traders are often bullish), the excessive optimism reflected in bets on Bitcoin prices above $90,000 seems overly ambitious, especially with less than three days left until these options expire.
In fact, 55% of the call options are set at strike prices above $70,000, resulting in a notional value of $2.22 billion that is realistically available for participation at the September monthly expiration. Similarly, 69% of the put options are set at $56,000 or less, resulting in a notional value of about $1 billion that is likely to expire worthless.
Bitcoin call (buy) options are well positioned to favor the bulls.
Below are the four most likely scenarios based on the current price trend. Availability of call and put options expiring on September 27th depends on the Bitcoin settlement price at that time.
This rough estimate assumes that call options are used primarily for bullish positions, and put options are used for neutral-bearish strategies. However, it is important to note that this is a simplification and does not take into account more complex investment strategies.
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- Between $57,000 and $58,000: Net profit is $250 million in favor of put (sold) options.
- Between $58,000 and $60,000: The net profit from call and put options is expected to be roughly equal.
- Between $60,000 and $62,000: Net profit is $550 million in favor of call (buy) options.
- Between $62,000 and $64,000: Net income is $1 billion in favor of call (buy) options.
The bears are under significant pressure to push Bitcoin below $60,000 before the September monthly expiry to avoid a scenario where the call option would generate a profit of $550 million. However, given the supportive macroeconomic conditions, including the Fed’s rate cut and the Chinese central bank’s stimulus measures, the odds appear to be in favor of Bitcoin bulls.
This article is for general information purposes only and is not intended to be, and should not be taken as, legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.