4 billion options are about to expire BTC amounting to $2.56 billion What is the impact?

On June 25, there will be nearly $4 billion in huge options expiration. Among them, the amount of BTC delivery is $2.56 billion and the amount of ETH delivery is $1.42 billion, the number of call options is far more than the number of put options.

On June 25, which is this Friday, there will be nearly $4 billion in huge options expiration.

According to Deribit data, the $4 billion in expiring options, BTC delivery amounted to $2.56 billion, ETH delivery amounted to $1.42 billion, the number of call options is far more than the number of put options. This is also the third largest option delivery amount in the options market following the $5.3 billion BTC option delivery on March 26 and $4.2 billion BTC option delivery on April 30 this year.

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Recent BTC option expirations Source: metrics.deribit

(Calls refer to call options, Puts refer to put options)

This year, the options market has seen explosive growth, from the perspective of trading volume, last December was just over 30 billion U.S. dollars, in January this year, it set a record of nearly 100 billion U.S. dollars in trading volume, May directly approaching 120 billion U.S. dollars, compared to the end of last year, trading volume has increased nearly four times.

Lin, the head of Deribit Asia’s business, said “one of the reasons for the surge in options trading volume is the large number of entries from institutions”.

As a Buff instrument that can hedge and enhance returns, options have always been favored by many professional traders, and since last year, major trading platforms have come online with options trading functions one after another, and the whole options market has gradually moved from the niche to the mainstream.

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Options trading volume in the last two years

Nowadays, along with the growth of the options market and the continuous integration of the trading market, the influence of the options market has expanded to the spot market, especially for the big options delivery data expectations, and even become the “market barometer” in everyone’s mouth.

With a huge $4 billion option expiration coming up, where will the market go from here? Can we draw any useful rules from the changing market of options? What stages of development has the crypto options industry gone through in the last decade of the development cycle? What is the landscape of the options market today and who is the leader? Big Star says to take you through each of them.

The Development of Crypto Asset Options Market

The term “option” stands for the future, and “right” stands for the right – the right to the future, that is, the option gives the buyer the right to buy or sell a certain asset at a certain price at a certain time in the future. It is a derivative contract.

Derivatives have been a product of human commerce for approximately 4,000 years, and the earliest concept of options can be traced back to the ancient Babylonian kingdom before 1792 BCE.

In the ancient Babylonian Code of Hammurabi, there is a record: “If a debtor who has borrowed money, due to storms or floods, has destroyed his fields or has not grown barley due to drought, the debtor is not required to pay the creditor for that year, and the debtor may alter the clay tablets (equivalent to a contract) and not pay the interest for that year”, the code will The code changed the “rigid” debt into a “contingent” debt, which actually formed the prototype of the option.

In the traditional financial world, it was not until the collapse of the Bretton Woods system and the wave of financial liberalization swept the world that the options market ushered in a faster development, after which, along with the establishment of the Chicago Board of Trade in 1973 (the same year also gave birth to the world’s first over-the-counter options, China’s first over-the-counter options did not appear until February 2015), the U.S. national options clearing agency in 1974 –the establishment of the Options Clearing Corporation (OCC), which kicked off the rapid development of the options market, followed by the gradual expansion of the options market into emerging markets and areas, including the current crypto-asset market.

The earliest crypto asset option product, however, appeared in 2012 with MPOE (Mircea Popescu Options Emporium), a BTC options market that existed on the bitcointalk forum, and because the entire crypto market was too small at the time, the product liquidity was severely lacking, and because of the short-sightedness of operators, this early attempt for BTC This early attempt at BTC options ended in failure due to the small size of the crypto market, the lack of liquidity in the products, and the short-sightedness of the operators.

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For the MPOE discussion Source: bitcointalk

In June 2016, Deribit, a futures and options trading platform created by John Jansen, Marius Jansen and others, started operations and became the future leader in the options space.

In 2018 trading platform BitMEX launched the UP/DOWN options contract, but at the time BitMEX designed this options product to only allow customers to buy and not establish short positions, which meant that only a single BitMEX-affiliated trader could sell these options, and this single market maker monopoly practice allowed the contract to trade at a price that was 10 times higher than the equivalent on Deribit product by a factor of 10, and BitMEX eventually took this product offline in January 2020.

Since then, major exchanges have also come online with options trading functions. FTX and OKex launched their own options products and trading functions in early 2020, and in September, Firecoin launched its own options contract product, and at the end of the year, Coinan finally launched its own European-style options, so that several major mainstream exchanges have completed their options products and trading functions online.

At the same time, on-chain options applications have also started to appear, especially since the DeFi wave started after 2020, on-chain options and even the entire derivatives market have seen great development, such as Hegic and SIREN on Ether; dTrad on Poca; PsyOpitons on Solana; Hedget on BSC, and cross-chain options Oddz and other types of options platforms have emerged one after another, but the options market is still dominated by centralized trading platforms.

In terms of options market share, Deribit has an absolute advantage, occupying nearly 86% of the BTC options market and 92% of the ETH options market, followed by OKex, LedgerX digital trading platform from the U.S. and ChiNext CME.

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The percentage of BTC options positions in the whole network

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Full net ETH options position history Data source: bybt

The Consensus and Judgment Hidden Behind Options

Generally speaking, large option deliveries occur on the last Friday of the month, which is also the time when most trading platforms deliver monthly options. In the options market, there are also some weathervane like “indicators” that allow us to find some useful details in the rapidly changing market.

One of them is the max pain price. The so-called max pain price is the point at which the market price is located at the expiration of the option, so that all buyers have the least profit and the most loss, while all sellers have the least loss and the most profit. In other words, the market price tends to move closer to the maximum pain point before the big option delivery date.

As for the reason behind this, it may be that some large institutions or market makers have enough influence to affect the market, and of course there are many people who do not recognize these theories either, but this indicator is one of the most commonly used.

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June 25 BTCmax pain price is $40,000$

Data source: metrics.deribit

The second is the bulk options trading. As we all know, the whole crypto market is a market with its information asymmetry, and for those parties with superior information (e.g.: institutions and whales), they are able to lay out in advance, so there are some interesting details that can be seen through the variance of these players.

For example, for some influential whale traders, they use options to amplify leverage and further increase returns, so such whale players or institutions tend to buy a certain product in bulk, thus revealing the whale player’s price judgment of the market, and such bulk trading, often results in an unusual amplification of trading volume for a certain product.

For example, on May 14, a trader purchased a large number of short-term bitcoin puts with a strike price of $46,000 and an expiration date of May 21 through Deribit, and increased the open interest in this product by nearly 800%, after which the 5-19 crash occurred on the eve of the upcoming expiration of this option.

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The option trading volume is unusually large Data source: metrics.deribit

In retrospect, this option at that time already revealed some anomalies, not only the volume suddenly zoomed large, but also the option expiration time was very short (only 7 days, common large options are at least quarterly), the BTC price at that time was $50,000, and there was also a deviation from the option price, in this case, it requires traders to have an accurate time grasp, so this also reflects a trader’s market judgment – it’s going down.

The third detail comes from implied volatility, which represents the expectation of future volatility as reflected in the option price and can be seen as the valuation level of the option. Generally, implied volatilities for forward options are very stable, but on May 17, implied volatilities for forward options with expiration dates over 300 days rose abruptly, which is extremely rare.

Of course, these are only hindsight arguments and are at best non-sufficient conditions for 5-19, but it gives a new dimension of thinking to observe market changes.

Fourth, there is also a basic consensus judgment on options delivery, the delivery date has downward/upward pressure on the underlying price, then after the delivery date, the price has the momentum to return. Take for example the call option with a maximum pain point of 40,000 and a delivery price of 35,000, originally the option delivery had the momentum to push the price to 40,000, but after the delivery date, the momentum is missing and the price will be difficult to continue to rise.

In response to the impact of the $4 billion option delivery on the market, Lin said “the June coin price trend is extremely volatile, and the 25th is another big option delivery – quarterly delivery, the biggest pain point for BTC options is at $40,000, and the bitcoin volatility index continues to hover at a high level, perhaps foreshadowing a violent volatility market around the delivery”. .

Options is a relatively high investor threshold industry, not for everyone, so for some of the above points, more just a reference and learning, after all, any financial market is unpredictable.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/4-billion-options-are-about-to-expire-btc-amounting-to-2-56-billion-what-is-the-impact/
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