- Options trading volume on crypto exchange Deribit has hit a record $20 billion for bitcoin and ether, nearing previous high of $21.7 billion. Indicates growing demand for crypto options.
- Options provide leverage and their increasing influence could drive greater volatility in crypto prices. For example, recent bitcoin rally partly fueled by options market makers buying BTC.
- Massive $4.5 billion bitcoin and ether options expiry approaching which could stir volatility. Unusually large value expiring in-the-money so potential for big market moves around expiry.
Crypto options activity has exploded recently, with the total value locked in bitcoin and ether options contracts hitting $20 billion on leading exchange Deribit. This milestone signals the growth of the crypto derivatives market.
Options Interest Nears Previous Peak
The notional open interest of active BTC and ETH options on Deribit, which controls 90% of crypto options trading, has climbed to $20.64 billion. This figure is nearing the previous peak of $21.7 billion reached last November when bitcoin traded above $66,000.
While bitcoin’s price today is much lower at around $34,000, the number of outstanding contracts is nearly double what it was in November 2021. According to Deribit CCO Luuk Strijers, this achievement demonstrates the platform’s growth as well as rising demand for options among traders.
Options Provide Leverage in Crypto Markets
Options give buyers the right but not the obligation to buy or sell the underlying asset at a set price on or before a specific expiration date. Call options confer the right to buy, while put options give the right to sell.
Options enable traders to speculate on crypto price moves with leverage. The growth in open interest means options activity will have greater influence in driving spot prices.
For example, BTC rallied 30% in recent weeks partly due to market makers adjusting their exposures by buying bitcoin as its price rose.
Massive Options Expiry Could Stir Volatility
Later today, BTC and ETH options worth $4.5 billion will expire on Deribit. Major monthly and quarterly expiries are known to inject volatility into crypto markets.
Most open interest is concentrated in in-the-money calls that were purchased as bitcoin rallied from $27,000 to $35,000 in recent weeks. With such a large expiry in-the-money, we could see fireworks soon.
According to Strijers, the unusually high value expiring in-the-money may spur market action around the expiry. Traders should buckle up for potential volatility ahead.
The surge in bitcoin and ether options activity to record highs signals a maturation of the crypto derivatives market. As options trading ramps up, it will likely act as a significant driver of prices in spot and futures markets. The impending mega expiry could add even more volatility to the mix.