Market maker in “fear mode” before $ 575 million Bitcoin options expire on Friday

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On June 4, a total of 15,530 Bitcoin (BTC) options expire, representing an open interest of $ 575 million. For now, the bulls are still badly hit by the 37% BTC price correction in May and this has resulted in most of the call (buy) options being underwater.

Despite the crash, Bitcoin’s active supply hit a five-month low as 45% of the coins were not moved in the past two years. This indicator shows that investors who bought by Bull Run 2019 are not ready to sell at current prices.

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The miners are also avoiding sales below $ 40,000 as their outflows recently hit a seven-month low from the historical average.

Meanwhile, technical analysts pointed to the 50-week exponential moving average as strong support near $ 34,000. Still, the price chart has formed a sideways trading pattern that culminates in a narrowing wedge and breakout known as “compression”, indicating higher volatility towards the end of the week.

What is clear is that the market is currently mixed and everyone is reaching for different signals to determine the direction of the next trend move.

Bears could have dominated when the markets weakened

While bears could easily have dominated Friday’s expiry, they appear to have gotten overconfident by primarily focusing on put options (put options) below $ 32,000.

Aggregate open interest in Bitcoin options. Source: Bybt

The initial picture speaks in favor of bears as the call-to-put ratio is 0.84, although this indicator rates every option equally. However, the right to purchase Bitcoin for $ 46,000 in less than 42 hours is currently worthless, so that call option trades below $ 20 each time.

A similar effect exists for the neutral to bearish put options at USD 28,000 and below. Owners have no advantage in extending them for the coming weeks, as these contracts have also become worthless. Therefore, to better assess how traders are positioned for the options expiration on Friday, one needs to focus on the range between $ 32,000 and $ 42,000.

The neutral to bull call options up to $ 42,000 amount to 3,080 Bitcoin contracts, representing an open interest of $ 114 million. On the flip side, put (put) options up to $ 32,000 comprise 4,680 Bitcoin contracts currently valued at $ 173 million.

As expected, the $ 60 million difference in favor of the bears is not enough to cause disruption. This situation was caused by overly bearish bets that didn’t pay off, potentially leading to the forfeiture of the first balanced options in three weeks.

Market makers tend to be bearish

The 25% delta skew provides a reliable, instant “fear and greed” analysis. This indicator compares similar call (buy) and put (sell) options side by side and becomes positive if the neutral to declining put option premium is higher than that of call options with a similar risk. This situation is usually viewed as a “fear” scenario, although it is common after solid rallies.

On the other hand, a negative bias leads to higher costs for hedging upwards and indicates an upward trend.

Bitcoin 30 Day Options 25% Delta Skew. Source: Laevitas

Since May 17, the indicator has tipped into the “fear” area several times and reached a high of 20%, which signals a lack of interest in offering protective puts.

There’s no doubt that bulls are scared, but historically these are the best places to buy the dip.

At least for the option expiration on June 4th, the bears no longer dominate trading. The expiration dates for Huobi, OKEx and Deribit are on June 4th at 8:00 a.m. UTC.

The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.