Bitcoin (BTC) and Ether (ETH) options contracts worth a combined $2.4 billion are set to expire on May 3 in a move that may signal increased market volatility.
A Bitcoin options contract is a derivative contract that allows investors to speculate on Bitcoin price movements without owning Bitcoin itself.
There are two types of options, namely call options and put options. Call options give investors the right to buy a cryptocurrency at a specific price before a certain date. Put options on the other hand allow investors to sell a cryptocurrency at a specific price before the expiry date
Investors often use the put-call ratio as a metric to assess the general state of the market. If traders are purchasing more puts than calls, then it is considered a bearish sign, and if they are purchasing more calls than puts, then the market sentiment is considered bullish.
A put-to-call ratio (PCR) below 0.7 is considered a strong bullish sentiment, while a PCR of more than 1 is considered a bearish indicator.
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On May 3 a total of 23,367 Bitcoin contracts worth $1.39 billion are set to expire. Data from the Debit exchange reveal that the put-to-call ratio for Bitcoin options contracts is currently at 0.50 with a maximum pain point at $61,000. The maximum pain point refers to the price at which the asset will cause financial losses to the greatest number of holders.
Similarly, a total of 334,248 Ether contracts with a notional value of $1 billion are expected to expire on Friday as well. These expiring contracts have a put-to-call ratio of 0.37 and a maximum pain point of $3,000.
The expiry of options contracts has historically been followed by short-term price volatility in the spot crypto market. Both Bitcoin and Ether, over the past couple of weeks, have experienced bearish pressure.
BTC price fell below $60,000 marking a major near 20% weekly corrections post halving; the Ether price fell below $2,900. The crypto market often bounces back from the options-led volatility within days of expiry.
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