$ 2 billion worth of Bitcoin (BTC) options will expire on Friday, August 27th. Some analysts argue that strong buying activity on call (buy) options on August 22nd was likely what triggered the most recent price test of $ 50,000.
QCP Capital, a digital asset trading company, mentioned in its market update that one company has “been consistently pushing up (option) prices over the past few weeks.” The activity that took place during the morning trading session in Asia aggressively bought bullish options in pieces of 100 BTC contracts each.
The report also mentions the near-term exhaustion of regulatory concerns as crypto-related decisions by the Senate Banking Committee and regulators are unlikely to bear fruit in 2021.
Bears may analyze different data
However, the most recent “The Week On Chain” report by blockchain analytics provider Glassnode contained some data on Bitcoin on-chain activity. One such analysis found that the number of business-adjusted transactions did not respond to the sustained upward movement.
Additionally, a provider of crypto market intelligence, Decentrader, pointed to insufficient trading volume during this latest move to push the price of BTC above $ 52,000.
Friday will be a major test of the $ 50,000 level as 4,372 BTC options contracts await the $ 218 million decision.
The initial call-to-put analysis shows the enormous dominance of neutral to bullish call instruments with a 60% higher open interest. Still, the bulls may have been over-optimistic as 68% of their bets were placed at $ 50,000 or higher.
Related: Bitcoin Rejects $ 51,000 After Michael Saylor Reveals New BTC Purchase – What’s Next?
91% of put options are likely to be worthless at expiration
On the flip side, 91% of protective put options were placed at $ 46,000 or below. These neutral to bearish instruments will become worthless if Bitcoin trades above this price on Friday. The option expires at 8:00 a.m. UTC, so some additional volatility is expected before the event.
Below are the four most likely scenarios taking into account the current price level. The imbalance that favors both sides represents the potential gain from the expiry, considering that calls (buy) options are more commonly used in bullish strategies, while protective puts are used in neutral to bearish trades.
- Under $ 45,000: 4,040 calls vs. 2,500 puts. The net result is a $ 69 million benefit on the neutral to bullish instruments.
- Over $ 46,000: 6,500 calls vs. 1,300 puts. The net result is $ 239 million with the neutral to bullish instruments preferred.
- Over $ 48,000: 7,400 calls vs. 420 puts. The net result is a $ 335 million benefit on neutral to bullish instruments.
- Over $ 50,000: 12,000 calls vs. 35 puts. The net result is a $ 600 million benefit on neutral to bullish instruments.
The above data shows how many contracts will be available based on the expiry price on Friday. There is no way to measure the net result for every market participant as some investors could trade more complex strategies, including market neutral strategies that use both calls and protected puts.
These two competing forces will show their strength as the bears try to minimize the damage. Either way, the bulls are in complete control of the Friday expiration and there seems to be enough incentive for them to defend the $ 48,000 level and even make a clearer profit by pushing the price above $ 50,000.
In the meantime, the bears should focus on the September expiration, considering that El Salvador is expected to adopt Bitcoin as legal tender next month. In addition, the country is building the infrastructure to support a government-issued Bitcoin wallet called Chivo.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement carries risks. You should do your own research when making a decision.