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$11 Billion in Bitcoin Options Expire Oct. 30, Raising Volatility Risks Ahead of US Midterms
Summary
- $11 billion in Bitcoin options will expire on Oct. 30, and with options hedging activity around current price levels heavily concentrated, volatility could increase.
- About 70% of gamma in the expiring options is concentrated between $75,000 and $82,000, meaning losses in the $75,000 to $78,000 range could deepen, while puts dominate below $80,000.
- Bitcoin's year-end price outlook depends on the outcome of the US midterm elections in November and the direction of crypto-friendly policy, with meaningful volatility expansion expected in November.
Forecast Trend Report by Period
Some $11 billion of Bitcoin options are due to expire on Oct. 30. With hedging activity concentrated around current price levels and the US midterm elections next month, volatility may increase.
Bloomberg reported on Oct. 29 that the contracts coming due account for about one-third of all open Bitcoin options on Deribit, the crypto-derivatives exchange. Bitcoin fell below $80,000 earlier this week and traded at about $81,100 during Singapore hours on Oct. 29.
Call options with strike prices of $90,000, $95,000 and $100,000 outnumber puts. But if Bitcoin stays around current levels, those calls will probably expire worthless. The market is instead focused on options closer to the current price and the hedging flows tied to them.
About 70% of gamma in the expiring options is concentrated in the $75,000 to $82,000 range, according to Adam Hymes, head of asset management at Tesseract Group. Gamma is a measure of how much hedging needs change as the underlying asset price moves. If dealers are holding short option positions, hedge-related selling on further declines could deepen losses in the $75,000 to $78,000 range. Below $80,000, put options outnumber calls by more than two to one.
Volatility risks may persist even after the expiry. Caroline Mauron, co-founder of Orbit Markets, expects option sellers to slow the supply of new contracts until the outcome of the Nov. 3 midterm elections becomes clear. That could reduce the supply of options that help cushion price swings, amplifying market moves before and after the vote.
The election result is also a factor that could affect the Trump administration's ability to push ahead with crypto-friendly policies. In a Bloomberg Markets Pulse survey, the median year-end forecast for Bitcoin was $90,800 if Republicans retain both chambers of Congress, $76,450 if Democrats control both chambers, and $84,100 if the two parties split the House and Senate.
Paul Howard, a senior director at Wincent, said he expects a meaningful increase in volatility in November after the past year of historically subdued price swings.
