Bitcoin’s 43% rally between March 10 and March 20 surprised options traders, with only $1.12 billion worth of open interest (OI) expiring today (April 7). This is evidenced by the fact that 14% are set at $28,000 or above.
The positive price action could partly be attributed to increased demand for commodities as investors see the central bank’s emergency rescue program as risky as liquidity injections weigh on investors and stoke inflation.
Urban Angehrn, chief executive of the Swiss Financial Market Supervisory Authority (FINMA), said that if Credit Suisse had not been bailed out, “many other Swiss banks would face a shortage of deposits. A settlement at a key bank in the global system would likely lead to contagion effects and endanger the Swiss and global financial stability.”
Investor appetite for commodities increased after the US Treasury Department was said to have discussed on March 21 the possibility of extending FDIC coverage to bank deposits. Oil prices, as measured by WTI, have risen 23.5% since March 20, and on April 5, gold topped $2,000, its highest daily close as of August 2020.
Unexpected volatility in the $33 trillion asset class, previously seen as a safe haven from inflation, could also benefit the commodities sector. Morgan Stanley has sounded the alarm on the commercial real estate market, predicting trouble for refinancing.
According to the bank’s report, the industry has been hit hard by an increase in telecommuting and corporate layoffs, leading to a 20-year high in vacancy rates. As a result, the investment bank strategist predicts a 40% drop in commercial real estate prices, saying that “more than 50% of the $2.9 trillion in commercial mortgage lending will need to be renegotiated over the next 24 months, at which point new lending rates are likely to rise.” to 350 and 450 basis points.”
Bitcoin bulls may benefit from increased demand to hedge against inflation, but some may be wasting the opportunity by betting $30,000 or more.
bulls bet too high to win
Open interest totals $1.2 billion at weekly bitcoin options contract expiry, but the real figure will be lower as bulls focus their bets on bitcoin prices trading above $29,000.
Total Bitcoin Options Open Interest April 7th | Source: CoinGlass
The put ratio of 1.85 reflects the difference in open interest between $720 million in calls and $390 million in puts. However, the actual result will be much lower as the bulls are too optimistic.
For example, if the bitcoin price held near $28,100 at 3pm on April 7, there would only be $125 million of call options available. This discrepancy arises because the right to buy Bitcoin for $29,000 or $30,000 would lapse if the price traded below that level at expiration.
unpredictable results
Below are the four most likely scenarios based on current price action. The number of call and put options contracts available on April 7 depends on the expiration price. An imbalance in everyone’s favor constitutes a theoretical profit:
- From $26,000 to $27,000: 300 calls and 6,000 puts. The end result was in favor of a $150 million put option.
- From $27,000 to $28,000: 1,200 calls and 3,500 puts.Net Outcome of Put Options
- From $28,000 to $29,000: 4,500 calls and 1,100 puts. The bulls turned it around and made $100 million.
- From $29,000 to $30,000: 8,500 calls and 100 puts. The bulls’ advantage increases to $240 million.
This rough estimate only takes into account puts on puts and calls on neutral to bullish trades. However, this oversimplification does not cover more complex investment strategies.
The key price at option expiration this week is $28,000, but the outcome is unpredictable due to heightened recession risks and market volatility. If the bulls can get their hands on $100 million, the money will likely be used to further strengthen the support level.
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Mr. teacher
As reported by Cointelegraph
