The price of Bitcoin (BTC) fell to 46-day lows as a combination of bearish factors during the week. Nearly 86 percent of the $ 2 billion September call options that expire on September 24 are gone.
Option prices for bears are unlikely to rise again, as the test below $ 40,000 on Sept. 21 resulted in the closing of about $ 250 million in futures contracts.
On September 22, Evergrande Group alleviated market default fears after it confirmed that it would make interest payments. Despite this, investors are waiting for the company’s dollar-denominated bonds, which are mainly held by international investors.
The recent move above $ 48,000 on September 18 and 19 was not enough to break the resistance of the 20-day moving average. The bulls are clinging to their hopes of a “return to average” move, considering that fears of maximum debt contamination in China have ended. Furthermore, no short-term action will be taken, as Gary Gensler, president of the United States Securities Commission (SEC), understood in an interview with the Washington Post on September 22.
Looking at historical data, September had a negative performance in all four of the previous five years. This downward trend will continue again if BTC closes in September below the closing price of $ 47,110 on August 31.
The end of September will be a test of strength for the bulls, as 86 percent of the $ 2 million call options were targeting $ 46,000 or more.
A call option is the right to buy Bitcoin at a specific price before the specified deadline date. Therefore, the $ 50,000 call option becomes worthless as BTC is trading below this price as of September 24.
Bulls dominate BTC price but are too confident
From a broad perspective, significant advantages are offered to bulls. Because the amount of open interest on call options is at the $ 2 billion level with a 90 percent difference compared to neutral put options.
However, this data can be misleading. Because over-optimism from the bulls will likely render most expectations inconclusive. Even an open position of $ 1.05 billion put options can be enough to balance these forces.
Below are the four most likely scenarios that take into account current price levels. The data below shows how many contracts will be available on Friday based on the expiration price.
- From $ 38,000 to $ 40,000: 3,390 purchases and 8,695 sales. The net difference is $ 21 million in favor of the sale.
- From $ 40,000 to $ 46,000: The net result is that there is a balance between the bears and the bulls.
- From $ 46,000 to $ 50,000: 11,820 purchases and 3 thousand 50 sales. The net result is 42 million dollars in favor of the call options.
- More than $ 50,000: 16,370 purchases and 1,400 sales. The bulls will take the lead with $ 75 million.
This rough estimate only considers call options used in bullish strategies and put options in neutral bearish trades. Meanwhile, real life is not that simple, as more complex investment strategies may have been applied.
Bears have reason to keep BTC price below $ 46,000
Buyers and sellers will maximize their efforts in the hours before the option expires on Friday. The bears will try to minimize the damage by keeping the price below $ 46,000. On the other hand, if BTC stays above that level, the bulls have a good grip on the situation.
Is $ 75 million a big enough profit to justify a rally of more than $ 50,000? Not really, but as stated above, these are simplified estimates. This will mainly depend on how the market makers and arbitrage tables are positioned, which is a game for everyone to guess.
There was still time for price volatility before Friday, but both sides appear balanced despite $ 3 billion in volume.
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