Open interest in Bitcoin options reached an all-time high of $ 2.14 billion on September 24, the day before the massive quarterly expiration of 89,100 contracts – 47% of the existing options contracts at the time. Options are derivative contracts that give their holder the right (but not an obligation) to buy or sell an underlying asset at a predetermined price, also known as the ‘rollover price’.
By observing OI trends before each monthly and quarterly expirations, there are peaks just before the expiration date, and they have been incremental after each expiration, indicating increased liquidity in the Bitcoin options market (BTC) and a growing number of participating investors.
Since this latest influx was third quarter quarterly inflows, open interest was expected to increase after the OI seen in previous monthly outflows in the same quarter. Cointelegraph also discussed this with Shawn Fernando, head of risk and product strategy at Deribit – the cryptocurrency derivative exchange – who agreed that “the trend of increasing open interest every quarter means a trend of increased liquidity in options,” he added. to me:
“The longer the outlet exists, the greater the open interest when traders take trades inside the port. So the March 2021 expiration was introduced in late June, giving it more time to create positions than the daily expiration, which usually has two days of existence. Linked Quarterly link in the Open Interest.
In addition to the high OI related to liquidity of options and the increasing number of market participants, it may also be driven by major macroeconomic events in the crypto market, such as the decentralized financial hype and the long-term impacts of Bitcoin in half on the markets. Lennix Lai, Director of Financial Markets at the OKEx Crypto Exchange, reflects this assessment as it addresses the reason for the immediate decline in OI once it expires:
Open interest is usually associated with the expected uncertainty and events that are expected to have a fundamental effect on the asset’s price. So, the OI at the end of September is reasonably larger due to the major industry-related incident with Bitcoin cutting its third in half in May and the public hype for DeFi – then the larger OI reflects the need for investors to secure options in recent months. The decrease in OI then indicates that this need for this type of accident-based risk management is now relatively smaller. ”
The growing trend of open interest in BTC options appears to be a positive sign that better things are coming for the cryptocurrency market, according to Lai: “Really! Signs of increased open interest are likely to reflect that more participants are entering the market. Moreover, any additional stimulus is coming. The market could create a strong bitcoin options landscape. ‘
Minimum price action
Despite anticipated price volatility before expiration, as nearly half of the Bitcoin Options traded contracts expired, there was no significant impact on the price. The main reason for this may be the size of the options / derivatives market compared to the BTC spot market. Although, investors are hoping that the options and futures market will grow to become a larger part of the spot BTC market, which has a market capitalization of $ 194.11 billion. Lai also believes that “the price effect is not so strong that it leads to large deviations,” and added, “Although there is no direct connection between OI and price after / before expiration in the traditional markets, the cryptocurrency markets are not on the sidelines.”
Regardless of this underlying reason for the lack of a major price move, selling conditions have not veered strongly to one side. A sale agreement is an option contract that gives the owner the right to sell a specified amount of the underlying asset at a specified time within a specified period, while a purchase contract gives the owner the right to sell the underlying asset under similar circumstances. Dan Kohler, Liquidity Manager at OKCoin – a San Francisco-based cryptocurrency exchange – explained that:
“The increased interest in Bitcoin options could have a fundamental impact on the spot market if there is a time when there is a major imbalance in the situation where the sales relationship strongly tilts towards one side. In such cases, when expiration occurs, and if the bulk of the options are exercised. Income, the awarded contract will trigger a price movement on BTC in the predetermined strike, and this will drive spot market prices in response.
“In the money” options refer to options that have intrinsic value to investors. An ITM call option means that option buyers will have the opportunity to purchase the asset at a price lower than the current market price, while an ITM call option gives buyers an opportunity to sell the asset above the current market price. These are seen as “out of money” options.