Although Bitcoin shows strength in the US trading session, traders and investors should brace for volatility in the early hours of the European session on Friday, as the market prepares for the options contract expiration event.
However, this impact may only occur temporarily, as markets often adjust quickly to adapt to new trading environments shortly thereafter.
What traders need to know about today's options expiration
Data from Deribit shows that over $5.03 billion in Bitcoin and Ethereum (ETH) options will expire today. Specifically for Bitcoin, the expiring options have a total nominal value of $4.3 billion, with 36,970 open contracts (OI).
The Put-to-Call ratio is currently at 1.06 and the 'maximum pain' for the Bitcoin options expiring today is $108,000.
For Ethereum options, the nominal value of the ETH contracts expiring today is $712.35 million, with 239,926 open contracts.
Similar to Bitcoin, the ETH options expiring today also have a Put-to-Call ratio above 1, with data from Deribit recording 1.11 at the time of writing. Meanwhile, the maximum pain point (strike price) is $2,600.
Notably, the value of Bitcoin and ETH options contracts expiring today is significantly higher than last week. On July 4, nearly $3.6 billion in options contracts are set to expire, including 27,384 BTC contracts and 237,274 ETH contracts, with nominal values of $2.98 billion and $610 million, respectively.
However, the main similarity between the options expiring this week and last week is that both have a Put-to-Call (PCR) ratio greater than 1.
A PCR greater than 1 indicates that more Put (sell) options are being traded than Call (buy) options, which often reflects the market's pessimistic sentiment.
The PCR for Bitcoin is 1.06 and for ETH is 1.11, indicating a balance in bets between buyers and sellers. This balanced outlook arises in the context of investors pondering whether the market will decline further or is hedging portfolio risks in the event of a sell-off.
High leverage trading activity – Extremely high risk levels
Analysts at Greeks.live note that there is currently very little consensus on market trends, as most trading activity revolves around news rather than price analysis. However, they also emphasize the state of high leverage trading and extremely high risk acceptance.
"Many traders are discussing positions using 500x leverage – seen as 'suicidal' at the current price levels. Despite the extremely high risk, new positions are still being opened, described as both exciting and reckless. Some 100% signal trading strategies are also being discussed, reflecting strong confidence but accompanied by significant risks," Greeks.live shared in a post.
Notably, trading with 500x leverage can extremely amplify both profits and losses. Meanwhile, both Bitcoin and ETH are currently trading well above their respective maximum pain points.
As of the time of writing, Bitcoin is trading at $118,197 after reaching a new all-time high (ATH). Meanwhile, ETH has reached $3,006 after increasing nearly 9% in the past 24 hours.
The maximum pain point is an important indicator in crypto options trading. It represents the price at which most options contracts will expire worthless, causing the largest financial loss – or 'maximum pain' – for traders holding these contracts.
This concept is important because it often influences market behavior. According to the maximum pain theory, asset prices tend to shift towards the maximum pain price when options contracts are nearing expiration.
As the options contracts expire on Deribit, the prices of Bitcoin and ETH may drop closer to these levels. However, this does not mean that BTC will drop all the way down to $108,000 or ETH to $2,600.
Markets often stabilize quickly after traders adapt to the new price environment. With the large volume of options expiring today, traders and investors can expect a similar scenario, potentially affecting market trends by the end of the week.