Today, Bitcoin (BTC) and Ethereum (ETH) options will expire for over $3.3 billion. This occurs after lower-than-expected US Consumer Price Index (CPI) and Producer Price Index (PPI) data.
How will the options expiring today affect the prices of these digital assets and the broader cryptocurrency market's volatility?
Options Worth $3 Billion Expiring... Cryptocurrency Market Response
According to cryptocurrency derivatives exchange Deribit, over $2.76 billion in Bitcoin options are set to expire, with the maximum pain point at $100,000. These options include 26,543 contracts, an increase from the previous week's 25,925 open interest.
The put-call ratio is 1.02, indicating that traders are purchasing more puts (sell rights) than calls (buy rights), reflecting a bearish market sentiment.
For Ethereum, $569.42 million in options will expire, including 219,986 contracts. This is a notable increase from last week's 164,591 contracts. The maximum pain point is $2,300, with a put-call ratio of 1.36, suggesting a bearish market outlook for ETH.
In cryptocurrency options, the "maximum pain point" is crucial. It represents the price level where option holders experience the greatest financial discomfort.
At the time of writing, Bitcoin was trading at $103,912, and Ethereum at $2,572. This means both digital assets are exceeding their strike prices, primarily showing a bearish market sentiment.
Notably, the market tends to move to the strike price or maximum pain level after expiration to minimize payouts.
"BTC skew is neutral... price movements could be interesting," wrote analysts from cryptocurrency derivatives exchange Deribit.
Analysts from Greeks.live point out that Bitcoin's rejection at the $105,000 threshold occurred in an overextended market situation. They also note that defensive strategies are emerging in the market, with traders preferring to sell rather than chase momentum.
"Many traders are realizing profits from long calls and shifting to more defensive positions. They feel everyone has rushed in," Greeks.live notes.
Recent US CPI and PPI, and Their Impact on the Cryptocurrency Options Market?
Meanwhile, these expiring options come after April US CPI data showed inflation moderating to 2.3%, the lowest since February 2021. Similarly, April PPI inflation dropped to 2.4%, below the expected 2.5%.
Analysts suggest that while April data might have changed the narrative, the market may underreact to this change. Low inflation and retail decline could pressure the Fed to cut rates sooner. This could occur despite previous signals of maintaining rates amid tariff uncertainty and a 2% inflation target.
"Rate cuts are being discussed again, and the market is not prepared for the upcoming situation," wrote cryptocurrency analyst Merlijn the Trader.
This generally supports risk assets like Bitcoin and Ethereum, increasing demand for cryptocurrency options as investors seek leveraged exposure. Low inflation reduces monetary tightening pressure, increasing market liquidity and driving up call option premiums.
However, cryptocurrency prices showed short-term volatility after CPI and PPI, with option traders experiencing increased activity, trading volume, and spread compression.
Option expiration can cause sharp price fluctuations, but its impact is typically temporary. The market usually stabilizes the next day, offsetting initial volatility.
Nevertheless, traders should carefully analyze technical indicators and market sentiment before investing in this volatile environment.
