Bulls or bears? Both have a fair chance in Friday’s Bitcoin options expiry

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Bitcoin (BTC) briefly broke above $24,000 on July 20, but the excitement lasted less than two hours after the resistance level proved more difficult than expected. On a positive note, the $24,280 high represents a 28.5% increase from the July 13 swing at $18,900.

According to Yahoo Finance, on July 19, Bank of America released its latest survey of fund managers, and the title was “I’m so bearish, I’m bullish.” The report cited investor pessimism, expectations of weak corporate earnings and stock allocations at the lowest level since September 2008.

The 4.6% advance on the tech-heavy Nasdaq Composite Index between July 18 and July 20 also provided the necessary hope for bulls to benefit from the upcoming July 22 weekly option expiration.

Global macroeconomic tensions eased on July 20 after Russian President Vladimir Putin confirmed plans to restore Nord Stream gas pipeline flow after the current maintenance period. However, in the course of the last few months, data show that Germany has reduced its dependence on Russian gas from 55% to 35% of its demand.

Bears placed their bets at $21,000 or less

The open interest for the July 22 options expiration is $540 million, but the actual figure will be lower because bears were caught by surprise. These traders did not expect a 23% rally from July 13 to July 20 because their bets were aimed at $22,000 and below.

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Bitcoin options aggregate open interest for July 22. Source: CoinGlass

The 1.09 call-to-put ratio shows the balance between the $280 million call (buy) open interest and the $260 million put (sell) options. Currently, Bitcoin stands near $23,500, which means that most bearish bets are likely to become worthless.

If the price of Bitcoin remains above $22,000 at 8:00 am UTC on July 22, only $30 million of these put (sell) options will be available. This difference occurs because the right to sell Bitcoin at $22,000 is worthless if BTC trades above that level at expiration.

Bears target $24,000 to ensure profit of $235 million

Below are the four most likely scenarios based on the current price action. The number of option contracts available on July 22 for call (bull) and put (bear) instruments varies, depending on the expiration price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $20,000 and $21,000: 900 calls versus 3,000 puts. The net result favors the put (bearish) instruments by $60 million.
  • Between $21,000 and $22,000: 2,400 calls versus 3,000 puts. The net result is balanced between bulls and bears.
  • Between $22,000 and $24,000: 6,600 calls versus 500 puts. The net result favors the call (bull) instruments by $140 million.
  • Between $24,000 and $26,000: 9,400 calls against 0 puts. Bulls take total control, profiting $235 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral to bullish trades. Even so, this oversimplification ignores more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately there is no easy way to estimate this effect.

Related: Bitcoin may reach $120K in 2023, trader says, as BTC price gains 25% in week

Bears have until Friday to turn things around

Bitcoin bears need to pressure the price below $22,000 on July 22 to avoid a $140 million loss. On the other hand, the bulls’ best-case scenario requires a slight push above $24,000 to maximize their gains.

Bitcoin bears just had $222 million of leveraged long positions liquidated from July 17th to July 20th, so they should have less margin required to move the price higher. In other words, bulls have a head start on supporting BTC above $22,000 before the options expire on July 22.

The views and opinions expressed here are only those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and business move involves risk. You should do your own research when making a decision.