Bitcoin (BTC) and Ether (ETH) options contracts worth a combined $2.4 billion are scheduled to expire on May 3, potentially leading to increased market volatility.
Bitcoin options contracts are derivative contracts that enable investors to speculate on Bitcoin price movements without actually owning the cryptocurrency. There are two types of options: call options and put options. Call options give investors the right to buy a cryptocurrency at a specific price before a certain date, while put options allow investors to sell a cryptocurrency at a particular price before the expiry date.
The put-to-call ratio is often used by investors as a metric to gauge the overall market sentiment. If more puts are being purchased than calls, it is considered a bearish sign, whereas if more calls are being purchased than puts, it indicates a bullish sentiment.
A put-to-call ratio below 0.7 is seen as bullish, while a ratio above 1 is considered bearish.
On May 3, a total of 23,367 Bitcoin contracts worth $1.39 billion are set to expire. Data from the Deribit exchange shows that the put-to-call ratio for Bitcoin options contracts currently stands at 0.5, with a maximum pain point of $61,000. The maximum pain point refers to the price at which the asset would cause the most financial losses to holders.
Similarly, a total of 334,248 Ether contracts with a notional value of $1 billion are also set to expire on Friday. These expiring contracts have a put-to-call ratio of 0.37 and a maximum pain point of $3,000.
Historically, the expiration of options contracts has been followed by short-term price volatility in the spot crypto market. Bitcoin and Ether have recently faced bearish pressure, with the BTC price dropping below $60,000 and the Ether price falling below $2,900. However, the crypto market tends to recover from options-led volatility within days of expiration.