Bitcoin (BTC) price has been holding above $20,700 for 4 days, fueling bulls’ hopes of another leg to $23,000 or even $25,000. Behind the bullish move was a decrease in inflationary pressure, confirmed by December 2022 wholesale prices of goods on January 18.
The US Producer Price Index, which measures final demand prices across hundreds of categories, also declined 0.5% compared to the previous month.
Eurozone inflation also stood at 9.2% year-on-year in December, marking the second consecutive decline from the all-time high of 10.7% in October. A milder-than-expected winter reduced the risk of gas shortages and lowered energy prices, raising analysts’ hopes of a “soft landing.” According to analysts, a soft landing would avoid a deep recession and possibly convince central banks to stop raising interest rates.
This week’s $580 million BTC options expiration on Jan 20 looks like an easy win for bulls because the surprising 23% seven-day rally above $21,000 caused most bear bets to lose their way. worth. The recent move has headlines (or hodlers) calling for a market bottom and the potential end of the bear market, but the options market could have the answer.
Can Bitcoin Options Help Bulls Secure the $20,000 Floor?
It may seem like a distant reality right now, but Bitcoin was trading below $17,500 just seven days ago. As the weekly options expiration on January 20 approaches, bullish bets are about to pay off, while bears will see their options become worthless as the trade deadline looms.
The bears’ main hope is the possibility that the US Federal Reserve will raise interest rates by 50 basis points at the next meeting, but that won’t happen until February 1st. The latest data on US retail sales December, the second spending cut in a row. The odds are increasingly favorable for a 25 basis point interest rate hike, indicating that the central bank’s effort to curb inflation is achieving the expected results.
If the bulls win on January 20, it will likely add buying pressure and feed into the $20,000 support level.
Bitcoin Bears Were Caught Completely Unprepared
Open interest for the January 20 options expiration is $580 million, but the actual figure will be lower as the bears were decimated after Bitcoin broke above $20,000. The bulls are in complete control, even though their payout increases to $21,000 or more.
The call-to-put ratio of 1.18 reflects the imbalance between the $150 million call open interest and the $125 million put options. If the Bitcoin price sustains above $17,000 at 8:00 am UTC on January 13, less than $2 million of these put options will be available. This difference occurs because the right to sell Bitcoin at $16,500 or $15,500 is worthless if BTC trades above that level at expiration.
$21,000 Bitcoin would give the bulls a profit of $220 million
Below are the three most likely scenarios based on current price action. The number of option contracts available on January 20 for call (bull) and put (bear) instruments varies, depending on the expiration price. The imbalance in favor of each side constitutes the theoretical benefit:
- Between $19,000 and $20,000: 7,500 calls against 1,700 put options. The net result favors the call instruments (bull) by $110 million.
- Between $20,000 and $21,000: 800 calls vs. 8,100 put options. The net result favors the call instruments (bull) by $165 million.
- Between $21,000 and $22,000: 10,600 calls against 200 put options. The net result favors the bulls by $220 million.
This crude estimate considers call options used in bullish bets and put options exclusively in neutral to bearish trades. Even so, this simplification ignores more complex investment strategies.
For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specified price, but unfortunately, there is no easy way to estimate this effect.
Related: Bitcoin Sees New 4-Month High As US PPI, Retail Data Posts ‘Big Mistakes’
Bitcoin bears need to push the price below $20,000 on Friday to minimize the loss. On the other hand, the bulls can double their gains by pushing the price above $21,000 on January 20 and netting $220 million.
The 7-day rally towards $21.3bn liquidated $1.2bn in leverage short (sell) futures contracts, so they may have less margin required to subdue the Bitcoin price.
For now, the bulls are well positioned to benefit from the expiration of BTC weekly options and use the gains to defend the $20,000 support.
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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
