options - Pwim.Net

May 15: The Year of Bitcoin Options?

Trading Crypto with Eugene is a series of daily commentary of market analysis and trading advice shared by Eugene Ng of Matrixport, a veteran trader with 10 years of experience in top-tier global investment banks. If you like the article, please follow us here on Blockchain.News so you won’t miss our future publications.

Happy Friday! BTC up 3% in the past 24 hours, flirting $9,900, teasing the market at the $10K psychological level. In the last few days, I noticed BTC’s weakness from the start of Asia session followed by buying activity when the U.S. woke up, driven primarily by spot buying (futures curve still relatively flat). This is why I suspect that U.S. capital is driving the current bid; both retail and institutions. You would notice that CME listed BTC futures have been trading at a 50-75 bps premium recently.

Another sign of U.S. or regulated capital coming into this space is that the total BTC options open interest made a new record of almost $1.3bn yesterday, the result of substantial increase of activity in CME. Yesterday marked the third consecutive record volume day for CME options; concentrated mostly on calls; $10k, $10.5k and $11k across both May and June tenors.

The last reason why I think fresh capital is being invested is that we are starting to see the breakdown in correlation between BTC and S&P. While this correlation tends to flip flop, the current weakness in correlation is also testimony that there is fresh money coming into the space defying the gravity of S&P weakness.

Trade Strategy: In the short term, I’m not chasing here as I think bears have an edge technically speaking. Having said that, I will be bidding between $7,800 to $8,000 which is around the key 200 DMA. Another way to buy BTC is to sell puts (i.e. wait for BTC to settle while harvesting your USD stable collateral at high double-digit % yield) which coincide with my current vol outlook that is to short volatility. For example, the BTC 8,000 put is yielding 30+% for 7 days. I hope you are enjoying my market musing so far and have a restful weekend with your family.

Technically speaking, we are making lower highs on the 4-hour chart… Let’s not forget we are still in the medium-term upward trending market as long as $7,800 holds….

Record $1.3bn of BTC options open interest. Increased sophistication, more venues, and new entrants… 2020 may mark the year of hyper-growth in BTC options…

The third consecutive record volume day for CME options… Institutions are coming…

CME BTC Options Open Interest… You can see the regulated institutional players are all bullish at 10k/10.5k/11k…

Disclaimer
Opinions expressed are solely the analyst’s own and do not express the views of Matrixport the company.
The views and opinions expressed in this article are those of the contributor and do not necessarily reflect the view of Blockchain.News.

Jul 17 Trading Analysis: Even the best pandemic stock couldn't move the needle on earnings

BTC continues to snooze while ALTs continue to put on their dancing shoes with some DeFi names tracking double digit gains on a daily basis this week. If DeFi isn’t enough, payments segment is also getting a bid on with Stellar making an announcement that they will be made available on Samsung mobile phones. So what if crypto celebrities and company twitter accounts got hacked, Bitcoin just had another free advertising campaign courtesy of these hackers. Bank of Thailand is also making greater progress in its central bank digital currency as it heads into Phase 3. Cheap subscription on demand entertainment service missing earnings during a time when the only thing anyone could do was stay inside. Netflix reported earnings after the close and boy did it disappoint, the stock dropped 12% after-hours on weak subscriber growth guidance for Q3 despite adding 10M subscribers this quarter. Even the best pandemic stock couldn’t move the needle on earnings. To me, this is another signal of what we should be expecting for this current earnings season. Yesterday, the U.S. recorded more than 70K new cases of Covid-19, in what has been a string of daily records. Having said that, quite a number of market participants I spoke to have shared with me that they are quite bullish on this weekend’s EU rescue fund summit, and they think there’ll be an agreement, so leaving me thinking that the risk is now a disappointment or a dovish response.
Trade strategy: risk to disappoint in the short term and so I will stick to my short-dated BTC 8-8.5k puts to stay defensive and enjoy your weekend with your family.BTC options market is turning more cautious with skew rallying strongly this week…

Interesting chart that shows S&P 500 pricing in the least recession across five asset classes… Bigger downside risk in stonks?

Gold also showing some signs of exhaustion? Losing momentum in the short term?

DisclaimerOpinions expressed are solely the analyst’s own and do not express the views of Matrixport the company.The views and opinions expressed in this article are those of the contributor and do not necessarily reflect the view of Blockchain.News.

Bitcoin Options Worth $1.3 Billion Expire

The largest lot of Bitcoin options before the end of the year expired on Nov. 27. The number was recorded as 78,000 Bitcoin (BTC) with a notional value of $1.3 billion, according to data analytics firm Skew.

A huge number of Bitcoin options

Skew noted that the expiry of this huge number of BTC options signalled the biggest lot until the close of the year. The data analytics firm also availed insights showing that Bitcoin spot trading and BTC derivatives were doing well in spite of the recent 10% correction by the leading cryptocurrency.

Bitcoin has been on a price frenzy because, after a bullish rally where the BTC price soared to around $19,500 on certain exchanges. The digital asset underwent a notable price correction, Bitcoin dropping below $16,500.

However, market analysts had explained that a price correction was expected of the mainstream cryptocurrency, at least if one were to look at it from a historical point of view. Previously, after a massive bull run, Bitcoin’s price has been known to fall back slightly on crypto exchanges.

For instance, the Bitcoin price corrected sharply to $17,250 as a number of crypto whales moved their BTC holding to exchanges. Some of the factors attributed to this price correction included a short-term resistance level, the fear of missing out (FOMO), and selling-off pressure by BTC whales.

Next expiry expected on Christmas Day

The next largest Bitcoin options at 66,500 BTC is expected on Christmas Day. Skew has also disclosed that CME has emerged to be one of the biggest Bitcoin futures markets favored by financial institutions.

This is because its open interest stands at $1.16 billion, with OKEx coming second at $1.07 billion, even if it witnessed a Bitcoin exodus after reopening its withdrawal services that had remained closed for weeks after one of its private key holders decided to cooperate with a public security firm in regard to an ongoing “investigation.” Therefore, high open interest in Bitcoin futures signals the growing demand by institutional investors.

$790 Million Worth of Ethereum Options Will Expire Today

$790 million Ethereum options will expire today, providing speculators with the last opportunity to buy or sell Ethereum (ETH) at a predetermined price.

Previously, on May 23, a series of negative impacts influenced the market due to China’s promulgation of a prohibition on cryptocurrency mining and Elon musk’s announcement that it would no longer accept Ethereum (ETH) as a payment method. Ethereum fell to a minimum of $1,729 on May 23.

During the intraday, Ethereum was rebounding from the previous location to $2,665, an increase of 54%.

Ethereum options provide traders with a unique opportunity to buy or sell ETH at a set price. The price of an option contract will vary depending on the time of purchase, the strike price, and the day of expiry. An option’s exercise price is the price the underlying asset can either be bought or sold for.

Source: Deribit Metrics

The figure above shows that the distribution of Ethereum(ETH) options that will expire on May 28. According to data from crypto derivatives exchange Deribit, the current “maximum pain price” that Ethereum will expire at is $3,000-still with a relatively long distance than the current trading price of $2,665.

The greatest pain point is the price at which the Ethereum options buyer loses the most in the market.

In other words, the maximum pain price will cause investors who previously purchased options to lose their time and opportunity cost of reinvestment of option premiums. This is the price that makes most options worthless because it is no different from buying or selling Ethereum on the public trading market. However, the option holders still need to pay for the option premiums to guarantee their spot.

Source: ETH Option Open Interest By Strike Price on Expiration Date of May 28 via Bybt

As of the expiration date of May 28, there are 196,122.23 ETH call (buy) ether options against 155,475.64 ETH put (sell) options in open positions.

In general, the call/put ratio is 1.26 that greater than 1, which proves that there are still more bullish investors, having a 26% advantage.

However, investors must consider the following fact: It is not particularly desirable to have the right to buy Ether for $3,000 or more in less than 16 hours.

The strike price of most call options and put options on May 28 was around $3,000, which is a decisive level because there are 33.27 call options compared to 14.94K put options.

Around this level, a total of 960.5 ETH call options 771.4 ETH put options will expire.

As shown in the above figure, many bearish investors with a large amount of open interest at an exercise price of around $2,800, and open interest has reached 11.79K ETH.

Open interest is the number of option contracts held by investors in all markets after the end of the previous trading day.

As the current price is moving around $2600, it seems that Ethereum bulls have no incentive to push the price above $3,000

Since the holders of the bullish contract who have accumulated Ethereum at a high strike price will most likely not exercise the option, if they chose to execute this option, these investors would buy Ethereum at a higher price, thereby pushing up the price.

Conversely, most of the bearish open interest is focused around $3,000 and $28,00, valued at 14.94K ETH and 11.79K ETH, respectively. There is also a high probability that bearish speculators will be willing to sell assets at this predetermined price to make profits.

$5,000 Emerge as the Largest Open Interest Strike Price for Ethereum Options

After topping highs of $4,800, Ethereum (ETH) became a $570 billion network based on more participants joining this blockchain. Furthermore, open interest is rising, with $5,000 being the largest strike price for Ethereum options.

Market insight provider Coinbase Institutional explained:

“$5K is the largest open interest strike for ETH options across expiries, followed by $10K and $15K.”

Therefore, the number of market participants eyeing an expiry of $5K stands at 110,000, followed by $10K with 98,500.

Whenever price increases, open interest rises, and this shows their strong correlation.

IntoTheBlock believes that Ethereum’s price is continuously going through the roof because of a supply squeeze. The data analytic firm noted:

“ETH continues to hit new all-time highs. A supply squeeze seems more probable since: – The staking contract hit 8.2m ETH – More than 8 million ETH is locked in DeFi – Since October 1st, more than 860k ETH left centralized exchanges, decreasing the supply available.”

IntoTheBlock had previously acknowledged that Ethereum’s price surge was sparked by an increase in the number of short-term traders.

Is Ethereum eyeing the $6,600 level?

Based on the cup and handle pattern, on-chain analyst Matthew Hyland believes that Ethereum has set its eyes on the $6,600.

A cup and handle price pattern is a technical indicator that shows a bullish signal extending an uptrend. It is often used to recognize opportunities to go long.

Meanwhile, the altcoin market capitalization has been rising with Ethereum, Binance Coin (BNB), Cardano (ADA), Tether (USDT), and Solana (SOL) leading the race.

Furthermore, the total cryptocurrency market capitalization is inching closer to the $3 billion mark.

With Ethereum being a stone’s throw away from the open interest strike price of $5,000, how the second-largest cryptocurrency plays out in the short-term remains to be observed.

Opinion: How Bitcoin Options Might Help Survival amid the Bear Market?

The Federal Reserve is raising interest rates at the most aggressive rate in nearly 30 years. With inflation at an all-time high and a looming recession, protecting capital is at the forefront of every investor’s mind.

Cash and government bonds were once safe assets during bear markets, but with inflation running amok and central banks struggling to stabilize bond yield curves, these traditional safe havens are looking shaky.

Options contracts can be a good way to hedge some of your risks, as they give you the right, but not the obligation, to trade an asset in the future at a predetermined price. A call option is the right to buy, and a put option is the right to sell.

There are two styles of options contracts. A trader using American-style options can exercise his or her contract at any point during the lifetime of the contract, whereas European-style options can only be executed only at the expiry date.

If it is not profitable to exercise your put or call option at the date of expiry, you can let it expire and take no action. In this scenario, your cost is limited to the amount of money you paid for the options contract when you bought it.

Multiple trading strategies use options contracts. But in this article, I’d like to share some approachable strategies that allow a certain amount of protection without needing to sell your assets.

Let’s take Bitcoin as the underlying asset. If you buy a put option at a strike price equal to or higher than the current price, it gains value as Bitcoin moves lower.

So, if your Bitcoin is in the red, your options contract will be green. And, if the market trends higher, nullifying your option, then Bitcoin will have appreciated covering some of the cost of the contract.

This strategy is best suited to traders who hold Bitcoin as long-term investments and do not wish to sell. This allows them to avoid a worst-case scenario: cascading liquidations that drag Bitcoin down dramatically. Buying a put is like buying insurance for downside risk.

So, if you suspect a further leg down is on the horizon, you can buy a put option as a type of insurance that pays out should the market move lower. Timing is crucial, especially during a bear market.

For example, if you believe the market will trend lower very quickly in the following days, buying a put may well be worth the initial investment, but if the market moves down slowly. You may not be able to recover the premium you paid to buy the put option. The same principle applies to call options as well.

Another popular use of options contracts is selling call options while holding the underlying asset. You can be paid immediately by selling a call option to another party, giving them the right to buy your Bitcoin should the price increase to or beyond a certain amount.

For example, if you sell a call option agreeing to sell 1 BTC at $30,000, you collect the price of that contract — the premium — right away, which acts as a hedge against the downside. Your only risk would be missing out on any gains beyond the strike price, which would be owned by the buyer of the option.

If Bitcoin doesn’t hit the strike price, then the option expires, and you keep the premium. The main risk with this strategy is that the underlying price of Bitcoin falls in the interim.

The bear market affecting crypto and other capital markets is a time to protect capital, so when the good times return, there will be plenty of opportunities to reallocate. Bitcoin price could whipsaw traders in troubled times. By using the options hedge, you can create a more robust portfolio while still HODLing your Bitcoin stack.

CME Group Rolls Out Ether Options for Upcoming Merge

CME Group, a leading derivatives marketplace, has launched the options of Ether futures, given that the much-anticipated merge has been pushing demand.

Tim McCourt, the global head of Equity and FX products at CME Group, pointed out:

“As market participants anticipate the upcoming Ethereum Merge, a potentially game-changing update of one of the largest cryptocurrency networks, interest in Ether derivatives is surging.”

Since the merge is slated for September 15, CME Group intends to offer more flexibility with the Ether options. Leon Marshall, the global head of sales at Genesis, stated:

“The launch of the new Ether options contract ahead of the highly anticipated Ethereum Merge provides our clients with greater flexibility to trade and hedge their Ether price risk.”

The merge is anticipated to be the largest software upgrade in the Ethereum ecosystem because it will change the consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS).

Therefore, the new options will complement CME Group’s Ether futures, which have recorded a 43% surge in average daily volume year-over-year.

Rob Strebel, the head of relationship management for DRW, said:

“As ether transitions through the anticipated merge this week, we expect we’ll continue to see strong demand for this Ether options contract.”

Since the Ethereum merge has been awaited with bated breath by the crypto community, the network’s speculative action has skyrocketed, Blockchain.News. The open interest shown in the ETH network highlighted that buying pressure outweighed selling.

On the other hand, a hard-fork mechanism is expected to be deployed within 24 hours after the merge.

Coinbase to Boost European Derivatives Market Presence with MiFID II License Acquisition

To expand its global influence, Coinbase, a major US cryptocurrency exchange, has announced plans to enter the European Union derivatives market. The year 2024 marks a strategic turn for Coinbase as it aims to acquire a Cyprus-based entity licensed under the Markets in Financial Instruments Directive 2014 (MiFID II). This significant move will enable Coinbase to offer regulated derivatives, including futures and options, within the EU, enhancing its service portfolio and market reach.

The Strategic Acquisition in Cyprus

Coinbase’s decision to acquire a MiFID-licensed entity in Cyprus is pending regulatory approval. Once finalized, this acquisition will significantly bolster Coinbase’s presence in the European market. This strategic move is aligned with Coinbase’s 2024 objectives, indicating a focused expansion into the European derivatives market, a sector experiencing rapid growth and increasing demand for regulated crypto-based financial products.

Understanding MiFID II and its Implications

MiFID II represents the EU’s updated regulations governing financial instruments. It plays a pivotal role in this expansion, as it allows entities to offer regulated trading services across EU member states. By leveraging this license, Coinbase plans to offer a range of derivatives products, a notable extension from its current offerings of spot trading in bitcoin and other cryptocurrencies.

Impact on the European Derivatives Market

The entry of Coinbase into the EU derivatives market is set to create waves, offering more choices to traders and investors in the region. It signifies the growing integration of cryptocurrency products into mainstream financial markets and reflects the evolving regulatory landscape in the EU. Coinbase’s ability to offer regulated derivatives is expected to attract a diverse group of investors, enhancing liquidity and stability in the crypto market.

Anticipating Regulatory Approval and Future Prospects

The acquisition, contingent on regulatory approval, is anticipated to be finalized in 2024. Coinbase’s expansion into the European derivatives market is a testament to its commitment to compliance, innovation, and customer service. This move is not only about business growth but also about adapting to the changing demands of the global financial ecosystem. Coinbase’s expansion is seen as a proactive step in bridging the gap between traditional finance and the burgeoning world of cryptocurrencies.

Conclusion

Coinbase’s planned expansion into the EU derivatives market through the acquisition of a MiFID II licensed entity in Cyprus marks a significant milestone in the company’s growth strategy. This move is set to enhance Coinbase’s service offerings and solidify its position as a leading player in the global cryptocurrency market. As the company awaits regulatory approval, the cryptocurrency and financial sectors eagerly anticipate the impact of this expansion on the European and global markets.