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How relevant is $900M open interest on bitcoin options above $100K?


Bitcoin (B T c) is rapidly approaching its worst monthly performance in a decade, but some investors are using it as an opportunity to buy ultra-bullish long-term derivatives. There are currently over $900 million in call (buy) options aimed at $100,000 and above, but what exactly do those investors want?

Option instruments can be used for a number of strategies, including hedging (protection) and helping speculators on specific outcomes. For example, a trader can expect a period of low volatility in the short term, but at the same time, some significant price oscillations towards the end of 2021.

What most novice traders fail to understand is that an investor can sell an ultra-bullish call (buy) option for September to improve profits on a short-term strategy, so do not expect it to continue until the expiration date.

Bitcoin options profit/loss estimate. Source: Deribit Position Builder

The chart above shows the net result of selling bitcoin for $40,000 on July 30. If the price stays above that range, the investor gains 0.189 BTC. At the same time, any result below $ 33,700 will produce negative results. For example, at $ 30,000, the net loss is 0.144 BTC.

The example shown below would have the same trade, but the investor would also sell 40 contracts for the September 24 $ 140,000 call option. The investor is excluding gains from potential price increases in exchange for higher net returns at current levels. .

Bitcoin Options Profit / Loss Estimate. Source: Deribit Position Builder

Notice how the same $ 40,000 result now results in a 0.464 BTC gain, and any price level above $ 26,850 gives a positive result. However, due to the ultra-bullish call, if bitcoin trades above $ 68,170 on July 30, the trade will also yield negative results.

Therefore, analyzing those ultra-bullish options separately does not always provide a clear picture of investors’ intentions.

Total Bitcoin Options Open Interest: Source: Bybt

There are currently 24,625 bitcoin call option contracts at $100,000 or more, equivalent to $910 million in open interest.

Sure, that sounds like a lot, but these ultra-bullish options currently have a market cap of $15.4 million. For example, the value of a call option on December 31 with a $120,000 strike is $1,500.

As a comparison, a $30,000 protective put option for July 30 is worth $2,700. Therefore, instead of focusing exclusively on open interest, one must take into account the actual cost for each option.

While these attractive $ 300,000 bitcoin call options make headlines, they do not necessarily reflect investors’ expectations.

For bitcoin holders, it makes sense to sell $ 100,000 and higher call options and pocket the premium. Worst case scenario, someone would sell $100,000 in December, which doesn’t sound like a bad investment at all.

The views and opinions expressed here are solely those of Author And do not necessarily reflect the views of Cointegraf. Every investment and trading move involves risk. You should do your own research when making a decision.