The crypto options market is booming.
Theoretical open interest in dollar value locked in active bitcoin and ether options contracts on major exchange Deribit amounted to $20.64 billion, according to data tracked by the Swiss company Laevitas.
This figure is almost comparable to the peak recorded on November 9, 2021, when bitcoin traded above $66,000, 90% higher than the prevailing market rate of $34,170. In other words, the current open interest on the contract terms is significantly higher than in November 2021.
“This milestone was reached with almost double the number of contracts in progress, representing not only a substantial triumph for Deribit, but also a clear indicator of broader market growth and growing interest from our customers in options,” said Luuk Strijers, commercial director. officer at Deribit, told CoinDesk. Deribit controls 90% of the global crypto options business.
Options are derivative contracts that give the buyer the right but not the obligation to buy or sell the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy and a put option gives the right to sell. A call buyer is implicitly bullish on the market, while a put buyer is bearish.
This record activity means that flows into the options market linked to investors and market makers will have a greater say in determining the price of the spot market.
Market makers have recently been told to hold on net shorts gamma exposure to bitcoin. They may have purchased the leading cryptocurrency as it was rising to bring their overall exposure back to neutral, inadvertently accelerating the price rise. BTC gained 30% in two weeks to trade above $34,000.
Later today at 08:00 UTC, BTC and ETH options contracts worth $4.5 billion will expire on Deribit. Monthly and quarterly settlements are known to inject volatility into the crypto market.
Most open interest in Bitcoin is focused on ITM calls or those priced below BTC’s prevailing market rate. Traders have fielded calls over the past two weeks as bitcoin has surged from $27,000 to $35,000.
A call option is in the money (ITM) when the current market price of the underlying security is higher than the strike price of the call option. A put is said to be ITM when the price of the underlying asset is lower than the strike price of the put.
“Options worth $4.5 billion will expire on Friday. This is a particularly high value with an unusual percentage expected to expire in-the-money (ITM) due to recent market developments, which are likely to cause some market action,” Strijers said.