Bitcoin’s (BTC) price has been trading above $22,500 for 12 days. Of course, this situation can change even if Federal Reserve chair Jerome Powell issues positive statements about the economy in today’s post-FOMC presser.
Even if the decision matches the market consensus, the post-meeting statement should be investors’ primary area of focus. Specific areas to focus on would be clues for the next meeting in March.
Troubling news for the largest stablecoin Tether (USDT) could also cause a meaningful impact after a Celsius bankruptcy examiner report showed that “Tether’s exposure eventually grew to over $2 billion” in September 2021. However, it is unclear if iFinex — Tether’s issuer — suffered any losses. iFinex chief technology officer Paolo Ardoino denied exposure to Celsius and suggested that the examiner had “mixed up” prepositions in the report.
Is a strong correction in stock market ahead?
Legendary portfolio manager Michael Burry, known for being one of the most vocal critics of the subprime mortgage crisis from 2007 to 2008, posted a short note on Twitter on Feb. 1, suggesting that investors “sell.”
While the message lacks a supporting thesis, one could conclude that Burry expects a meaningful correction in traditional markets. Considering the 40-day correlation between Bitcoin and the S&P 500 index at 75%, the odds of a BTC price retrace become evident.
Consequently, this week’s Feb. 3, $1 billion BTC options expiry can go either way because bears can still flip the tables as the tide currently favors the bulls.
Bitcoin bears were caught entirely off-guard
The open interest for the Feb. 3 options expiry is $1 billion, but the actual figure will be lower since bears were caught by surprise after the 9.6% rally between Jan. 20 and Jan. 21.
The 1.61 call-to-put ratio reflects the imbalance between the $640 million call (buy) open interest and the $400 million put (sell) options.
If Bitcoin price remains above $23,000 at 8:00 am UTC on Feb. 3, less than $7 million worth of these put (sell) options will be available. This difference occurs because the right to sell Bitcoin at $22,000 or $23,000 is useless if BTC trades above that level on expiry.
$23,000 Bitcoin would give bulls a $180 million profit
Below are the three most likely scenarios based on the current price action. The number of options contracts available on Feb.3 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:
- Between $21,000 and $22,000: 2,700 calls vs. 10,700 puts. The net result favors the put (bear) instruments by $165 million.
- Between $22,000 and $23,000: 4,400 calls vs. 4,200 puts. The net result is balanced between call and put options.
- Between $23,000 and $24,000: 7,800 calls vs. 100 puts. The net result favors the call (bull) instruments by $180 million.
- Between $24,000 and $25,000: 12,400 calls vs. 0 puts. Bulls extend their gains to $300 million.
This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.
For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but unfortunately, there’s no easy way to estimate this effect.
In essence, Bitcoin bears need to push the price below $22,000 on Feb. 3 to flip the tables and secure a $165 million profit. But, for now, bulls are well positioned to profit from the BTC weekly options expiry and use the proceeds to further defend the $23,000 support.
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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.