3 reasons why Bitcoin bulls are well positioned to profit from this week’s $4.2B options expiry

Regulation continues to be the primary concern for Bitcoin bulls, especially after the Commodity Futures Trading Commission (CFTC) sued Binance for trading and derivatives law violations. The regulator wants Binance to repay the trading profits, revenues, salaries, commissions, loans and fees it received from US citizens, as well as paying civil penalties for the violations.

The increase in Bitcoin’s price was also fueled by a shift in sentiment toward risk assets after the U.S. Federal Reserve Chair Jerome Powell said interest rate hikes are no longer the default move to curb inflation. The central bank understood that the current situation will likely “result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes.”

Fixed-income investors earn more when interest rates rise, so buying stocks and commodities becomes less appealing. As a result, by reversing the strategy and adding $339 billion in liabilities in two weeks, the Fed chose to contain the banking crisis, which may cause inflation to spiral out of control.

Given the accretive scenario for risk assets, Bitcoin bulls can profit up to $1.4 billion in Friday’s monthly options expiry.

Bitcoin bears were caught completely off-guard

The open interest for the March 31 options expiry is $4.2 billion, but the actual figure will be lower since bears were expecting sub-$26,500 price levels. These traders were caught by surprise as Bitcoin gained 32% between March 12 and March 17.

The 1.34 call-to-put ratio reflects the imbalance between the $2.4 billion call (buy) open interest and the $1.8 billion put (sell) options. However, if Bitcoin’s price remains near $28,000 at 8:00 am UTC on March 31, only $25 million worth of these put (sell) options will be available. This difference happens because the right to sell Bitcoin at $26,000 or $27,000 is useless if BTC trades above that level on expiry.

Bulls aim for $29,000 to secure a record-breaking $1.4 billion profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on March 31 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

• Between $25,000 and $26,000: 27,200 calls vs. 12,700 puts. The net result favors the call (bull) instruments by $360 million.
• Between $26,000 and $27,000: 32,300 calls vs. 8,500 puts. The net result favors the call (bull) instruments by $620 million.
• Between $27,000 and $28,000: 38,100 calls vs. 3,000 puts. Bulls increase their advantage to $1.2 billion.
• Between $28,000 and $30,000: 48,300 calls vs. 400 puts. Bulls dominate by profiting $1.4 billion.

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.

For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but unfortunately, there’s no easy way to estimate this effect.

Related: ‘Definitely not bullish’ — 7% Bitcoin price gains fail to convince traders

The bears best hope relies on regulatory FUD

Bitcoin bulls must push the price above $29,000 by March 31 to secure a potential $1.4 billion profit. Bear’s best shot, on the other hand, is more regulatory FUD about stablecoins or major crypto exchanges — which has so far been fruitless.

Considering the bullish momentum created by the Fed’s inability to continue raising interest rates, bulls are well positioned for the March BTC monthly options expiry. Most likely, those profits will be used to further strengthen the $28,000 support, so the expected outcome is especially concerning for bears.

Bitcoin (BTC) price has been hovering around $28,000 for the past ten days, but the cryptocurrency has gained 70.5% year to date. Until March 17, Bitcoin was trading below $25,000 and this explains why most bearish bets for March’s $4.2 billion options expiry were placed at $26,500 or lower.