Bitcoin’s (BTC) price is now making a gradual recovery after encountering a steep 16% decline in the early hours of trading on April 18. While some of the analysts and commentators blame a 9,000 BTC deposit at Binance, others turned to the hash rate drop that was caused by a severe coal mining accident in China.
Irrespective of the reason behind the drop to $51,200 lows, options market makers were compelled to adjust their exposure. Normally, arbitrage desks seek non-directional exposure, which means that they are not directly betting on bitcoin moving in any particular direction.
Nevertheless, neutralizing options exposure normally needs a dynamic hedge, meaning that positions must be adjusted based on the prevailing bitcoin price. The arbitrage desks’ risk adjustments normally involve selling bitcoin whenever the market drops, and as a result, adds more pressure to the long liquidations. Hence, it makes sense to comprehend the current level of risk as the April 23 options expiry gets closer.
The Initial Outlook Appears Balanced
Before the April 18 correction, bitcoin accumulated 74% gains in three months as it recorded a $64,900 all-time high. Therefore, it is normal for the investors to approach the protective options more heavily.
While the neutral-to-bullish call (buy) option offers the buyer with upside price protection, the opposite happens with the more bearish put (sell) options. By measuring every price level’s risk exposure, traders can gain some insight into how bearish or bullish traders are positioned.
The total number of contracts are set to expire on April 23 totals 27,320 BTC, which is valued at about $1.55 billion at the current $56,500 price. Nevertheless, the bulls and bears apparently balanced as the call (buy) options total 45% of the open interest.
Bears Have An Advantage After Recent Crash
While the original picture appears neutral, one needs to consider that the $64,000 call (buy) and higher options are nearly worthless, with less than three days left before their expiry. A more bearish scenario arises when these 6,400 bullish contracts currently trading below $50K each are removed.
The neutral-to-bearish put options now dominate with 70% of the remaining 19,930 BTC contracts. The open interest stands at $1.13 billion considering the BTC price currently, and that gives the bears some $450 million advantage.
Analysts can see that the bulls were caught off-guard as BTC retraced 13% after the April 14 all-time high. Only 3,000 BTC call options are left below $58K, which is just 24% of the total.
In the meantime, the neutral-to-bearish put options amount to nearly 9,000 BTC contracts at $55,000 and higher strikes. The difference represents a $340 million open interest that is believed to favor the bears.
As things currently look, the expiries between $57,000 and $64,000 are quite balanced, suggesting that the bears have an incentive to ensure that the price remains down on April 23.