High volumes of Bitcoin and Ethereum options in the cryptocurrencies market are facing contract expiration. Ethereum options have a higher conceptual value compared to Bitcoin options and have been trading more than Bitcoin options for over a month due to a significant shift in derivative trading.
What are option contracts ?
Option contracts are a type of derivative instrument that gives the holder the right to buy or sell a particular asset (such as cryptocurrencies) at a specific price on a certain date. Option contracts provide protection against price increases or decreases for the buyers and can also be used for speculative purposes.
There are two types of option contracts: call option and put option. A call option holder has the right to buy an asset at a certain price on a specified date. A put option holder has the right to sell an asset at a certain price on a specified date.
What are Bitcoin and Ethereum options ?
Bitcoin and Ethereum options are financial instruments that give the holder the right to buy or sell an asset (such as Bitcoin or Ethereum) at a certain price on a specific date. These options provide the buyer with the opportunity to make a prediction about whether the price of the asset will rise or fall in the future. Ethereum options are flexible derivative contracts that allow investors to speculate on the price of ETH. Currently, the maximum loss point is set at $1,800 and represents the highest loss point for option holders.
What is an option premium ?
In a Bitcoin or Ethereum option, the option holder (buyer) pays a fee called the option premium. This fee is collected by the seller of the option. The option premium allows the buyer to have the right to buy or sell the asset.
Are volatile days coming to the cryptocurrency market ?
Recently, it was reported that the open positions (OI) in Ethereum options were high and their total nominal value exceeded $4.8 billion. Similarly, about 37,000 Bitcoin options, with a nominal value of just over $1 billion, are set to expire. Past data shows that the expiration of high-value options can cause price volatility. This can cause an increase in price fluctuations in the cryptocurrency market.
However, investors need to understand the risks associated with options and manage their risks using appropriate strategies. This requires investors to have sufficient knowledge about options and to follow market developments. Additionally, investors can use option contracts to protect themselves against price fluctuations.
The maximum loss point for Ethereum options is set at $1,800. This level represents the strike price with the highest number of open contracts and could result in financial losses for the largest number of option holders at expiry. According to information, Ethereum Open Interest (OI) has almost 2.6 million open contracts yet to be settled and the put/call ratio is 1.09. This ratio is calculated by dividing the number of traded put (short) options by the number of traded call (long) options, and a number greater than 1 is interpreted as a bearish trend. The situation for Bitcoin options looks slightly more bullish, with a put/call ratio of 0.51.
Industry analyst Colin Wu commented on this significant shift in derivative trading and noted that Ethereum options have been trading more than Bitcoin options for over a month.
In summary, the expiration of high-value option contracts in the cryptocurrency market may cause price volatility. It is important for investors to understand the risks associated with options and manage their risks using appropriate strategies.