Cryptocurrency Derivatives Series: Bitcoin Price Dynamics And Hedging Strategy Ahead of Options Expiry Season

Bitcoin options of monthly & quarterly volumes worth $1 billion is due for expiry. This is going to be the largest options expiration till date that usually appears to cause the huge volatility ahead of this event. However, that seems unlikely when you observe the daily price pattern of BTCUSD (at Coinbase) which is drifting in sideways. Of late, the pioneer cryptocurrency has been trading within the tight range of $10500 - $8,585 levels (noticeably, this has prolonged over months together).

For now, the prevailing sideway/range-bounded trend is most likely to persist further as both trend and momentum indicators are not indicating any dramatic movements.

On the contrary, couple of other trading veterans perceive the BTC option market’s growing size is most likely to have considerable influence over the underlying BTC’s market dynamic.

Bitcoin options shows that around 114,000 options contracts of regulated and unregulated derivatives exchanges are all set to expire now. While Open Interest data by strike indicates that the underlying price is likely to spike towards 11,000 levels.

Technically, after confronting major obstacle (the stiff resistance of $10,000 level), bitcoin began plummeting price against the US Dollar. Although it has broken down the crucial support of $9,500 level (i.e. 21-DMAs), we could still see strong support at 8,585 levels.

Hanging man pops-up at $9,427 (i.e. well below DMA levels). Prior to which, hammer takes-off rallies above 100-DMAs with bullish crossovers, bullish engulfing signals intensified buying sentiments as minor trend breaks-out stiff resistance, bulls shrug-off double top pattern, we reiterate $8,585 areas act as the strong support.

As we could foresee more upside risks in the days to come with the strong support of $7,950 levels (i.e. 100-DMAs), long hedges have already been advocated using CME BTC Futures when the underlying BTC was trading at $4,927 levels, and we wish to uphold the same positions with July months deliveries. It is unwise to keep speculating on the next upside target and accumulate fresh bitcoins. Instead, one can certainly uphold the above advocated long hedges for now (spot reference: 9,231 levels).

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