Here’s why $16.5K is critical for November’s $1.14B Bitcoin options expiry

Bit­coin (BTC) faced a 7.3% drop between Nov. 20–21 as it test­ed the $15,500 sup­port. While the cor­rec­tion seems small, the move­ment has caused $230 mil­lion in liq­ui­da­tions in futures con­tracts. Con­se­quent­ly, bulls using lever­age came out ill-pre­pared for the $1.14 bil­lion month­ly options expiry on Nov. 25.

Bit­coin investors’ sen­ti­ment wors­ened after Gen­e­sis Trad­ing, which is part of the Dig­i­tal Cur­ren­cy Group (DCG) con­glom­er­ate, halt­ed pay­outs at its cryp­to lend­ing arm on Nov. 16. More impor­tant­ly, DCG owns the fund man­age­ment com­pa­ny Grayscale, which is respon­si­ble for the largest insti­tu­tion­al Bit­coin invest­ment vehi­cle, the Grayscale Bit­coin Trust (GBTC).

Addi­tion­al­ly, Bit­coin min­er Core Sci­en­tif­ic has warned of “sub­stan­tial doubt” about its con­tin­ued oper­a­tions over the next 12 months giv­en its finan­cial uncer­tain­ty. In its quar­ter­ly report filed with the Unit­ed States Secu­ri­ties and Exchange Com­mis­sion (SEC) on Nov. 22, the firm report­ed a net loss of $434.8 mil­lion in the third quar­ter of 2022.

Mean­while, New York Attor­ney Gen­er­al Leti­tia James addressed a let­ter to the mem­bers of the U.S. Con­gress on Nov. 22 rec­om­mend­ing bar­ring the pur­chase of cryp­tocur­ren­cies using funds in IRAs and defined con­tri­bu­tion plans such as 401(k) and 457 plans.

Despite the bulls’ best efforts, Bit­coin has not been able to post a dai­ly close above $17,000 since Nov. 11. This move­ment explains why the $1.14 bil­lion Bit­coin month­ly options expiry on Nov. 25 could ben­e­fit bears despite the 6% ral­ly from the $15,500 bottom.

Most bullish bets are above $18,000

Bitcoin’s steep 27.4% cor­rec­tion after fail­ing to break the $21,500 resis­tance on Nov. 5 sur­prised bulls because only 17% of the call (buy) options for the month­ly expiry have been placed below $18,000. Thus, the bears are bet­ter posi­tioned even though they placed few­er bets.

A broad­er view using the 1.14 call-to-put ratio shows more bull­ish bets because the call (buy) open inter­est stands at $610 mil­lion against the $530 mil­lion put (sell) options. Nev­er­the­less, as Bit­coin is down 20% in Novem­ber, most bull­ish bets will like­ly become worthless.

For instance, if Bitcoin’s price remains below $17,000 at 8:00 am UTC on Nov. 25, only $53 mil­lion worth of these call (buy) options will be avail­able. This dif­fer­ence hap­pens because there is no use in the right to buy Bit­coin above $17,000 if it trades below that lev­el on expiry.

Bears could secure a $245 million profit

Below are the four most like­ly sce­nar­ios based on the cur­rent price action. The num­ber of options con­tracts avail­able on Nov. 25 for call (bull) and put (bear) instru­ments varies, depend­ing on the expiry price. The imbal­ance favor­ing each side con­sti­tutes the the­o­ret­i­cal profit:

• Between $15,000 and $16,000: 200 calls vs. 16,000 puts. The net result favors bears by $245 million.
• Between $16,000 and $17,000: 3,200 calls vs. 11,900 puts. The net result favors bears by $145 million.
• Between $17,000 and $18,000: 5,600 calls vs. 8,800 puts. Bears remain in con­trol, prof­it­ing $55 million.
• Between $18,000 and $18,500: 9,100 calls vs. 6,500 puts. The net result favors bulls by $50 million.

Relat­ed: BTC price holds $16K as ana­lyst says Bit­coin fun­da­men­tals ‘unchanged’

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.

Bit­coin bulls need to push the price above $18,000 on Nov. 25 to flip the tables and avoid a poten­tial $245 mil­lion loss. How­ev­er, Bit­coin bulls recent­ly had $230 mil­lion worth of liq­ui­dat­ed lever­aged long futures posi­tions, so they are less inclined to push the price high­er in the short term. With that said, the most prob­a­ble sce­nario for Nov. 15 is the $15,000-to-$17,000 range pro­vid­ing a decent win for bears.

The views, thoughts and opin­ions expressed here are the authors’ alone and do not nec­es­sar­i­ly reflect or rep­re­sent the views and opin­ions of Cointelegraph.