Bitcoin’s (BTC) derivatives continue to grow despite light spot trading over the past two months. The cryptocurrency’s options market is on its way to a record $1 billion monthly expiry this Friday.
At press time, there are 114,700 option contracts (notional value of over $1 billion) set to expire on June 26 across major exchanges – Deribit, CME, Bakkt, OKEx, LedgerX – according to data provided by the crypto derivatives research firm Skew.
Options are derivative contracts that give buyers the right but not obligation to buy or sell the underlying asset at a predetermined price on or before a specific date.
A call option gives the right to buy and the put option represents the right to sell. With options, traders can make bullish or bearish bets on contracts at various price levels called strikes that expire in different months.
Option expiries can influence market direction via a process known as “pinning” in which option traders try to move the spot price to avoid sharp losses.
Holders who benefit from higher prices in the underlying asset – put sellers and call buyers – often take long positions in the spot market to raise prices before the expiration date.
On the other hand, put buyers and call sellers, who benefit from a drop in the underlying asset, take short positions in the spot market to keep prices under pressure ahead of expiry.
The tug of war often leads to prices being pinned at or near the strike price where a large number of open positions are concentrated.