The price of Bitcoin (BTC) is slowly recovering after a sharp correction of 16% in the early hours of April 18.
While some analysts blame a 9,000 BTC deposit on Binance, others focused on the hashrate drop caused by a mining accident in China. Regardless of the reason behind the low of $ 51,200, option makers were forced to adjust their exposure.
Typically, arbitrage desks seek non-directional exposure, which means they don’t directly bet that BTC is moving in a particular direction. However, neutralizing the exposure to options usually requires dynamic hedging, which means that positions must be adjusted to the price of Bitcoin.
The risk adjustments of these arbitrage desks usually involve selling BTC when the market falls, further adding to the pressure on long liquidations as a result. Therefore, it makes sense to understand the current level of risk as the April 23 options expire. We will try to investigate whether or not bears will benefit from a $ 50,000 BTC price.
The initial outlook appears balanced
Before the April 18 correction, BTC posted 74% gains in three months, hitting a record high of $ 64,900. So it is normal for investors to take protective options more seriously.
While the neutral-to-bullish call (buy) option offers the buyer upside price protection, the opposite happens with the more bearish put (sell) options. By measuring the risk exposure of each price level, traders can understand how bullish or bearish traders are positioned.
The total number of contracts expiring on April 23 will total 27,320 BTC, which is $ 1.55 billion at the current price of $ 56,500. Bears and bulls are apparently in equilibrium, however, as the call (buy) options total 45% of the outstanding interest.
Bears have a significant advantage after the recent crash
While the initial picture may seem neutral, it should be remembered that the $ 64,000 call (buy) and higher options are nearly worthless, with less than three days left before the expiration date. A more bearish situation arises when these 6,400 bullish contracts currently trading below USD 50 are removed.
The neutral to bearish put options dominate with 70% of the remaining 19,930 BTC contracts. The interest outstanding is $ 1.13 billion given the current Bitcoin price, and this gives the bears an advantage of $ 450 million.
Bulls can be seen caught off guard when Bitcoin fell 13% from its all-time high on April 14. A meager 3,000 BTC call options remain below $ 58,000, which is just 24% of the total.
Meanwhile, the neutral to bearish put options are at 9,000 BTC contracts at $ 55,000 and higher strikes. This difference represents an outstanding interest of $ 340 million that is beneficial to bears.
As things stand now, maturities between $ 57,000 and $ 64,000 are fairly balanced, suggesting that the bears have an incentive to keep the price low on April 23.
The views and opinions expressed here are solely those of the author and do not necessarily reflect Cointelegraph’s opinion. Every investment and trade move carries risks. You should do your own research when making a decision.