The rising put-call ratio ahead of Bitcoin's (BTC) upcoming $14 billion options expiration indicates that market volatility may increase.
A critical threshold is approaching in the Bitcoin options market. This Friday, a total of $14 billion in options contracts will expire on Deribit, the world's largest cryptocurrency options exchange. Since call options, which make up a significant portion of the options, are below current prices, they appear to be profitable for investors. However, the rise in the put-call ratio indicates that downside risks in the market are also being acknowledged.
The put-call ratio refers to the ratio of active put options to call options at a given time. Traditionally, an increase in this ratio indicates that investors are taking a more protective stance against downside risks and expect prices to decline. However, this time the situation is somewhat different.
Part of the reason for this increase stems from strategies known as 'cash-secured puts', which are employed to generate income and accumulate Bitcoin. In this method, investors sell put options that provide insurance-like protection against declines in BTC prices, collecting premiums. If prices fall, investors are obligated to buy Bitcoin at a predetermined price, but they earn income from the premiums they collected.
According to Lin Chen, Head of Business Development for Deribit Asia, the put-call ratio was around 0.5 last year, and it has now risen to 0.72. This indicates that investor interest in put options has increased, but this interest may not be entirely due to expectations of a decline; it could also stem from a search for yield.
The 'max pain' level in the options market is set at $102,000. This level is the price point at which option buyers will incur the most loss. Therefore, as the options expiration approaches, market movements are expected to be limited and slightly upward trending, particularly in the $100,000-$105,000 range.