There’s roughly $31 billion worth of Bitcoin options set to expire on Halloween next week. This marks a record-high monthly expiry, significantly surpassing last month’s $18 billion. This is notable considering the recent record-setting liquidation event that followed the October 10 flash crash, where $19 billion in leveraged positions were wiped out.
“That event erased roughly $7 billion in BTC options open interest, bringing total open interest down from about $38 billion to near $31 billion — the sharpest weekly contraction since June,” Bitfinex analysts told Decrypt.
Currently, $14 billion worth of options contracts are set to expire next Friday on Deribit, the leading crypto derivatives exchange acquired by Coinbase earlier this year. Meanwhile, CME — the world’s largest derivatives exchange — has another $13.5 billion worth of Bitcoin options set to expire within the same timeframe.
Despite the October 10 wipeout, open interest on Deribit remains at an all-time high, according to the exchange’s chief commercial officer. He told Decrypt:
> “Bitcoin options open interest at Deribit has surged to a record $50.27 billion notional value across 453,820 active contracts this week, more than doubling year-to-date and reflecting heightened institutional hedging against downside risks.”
He also highlighted a notable concentration of put contracts with a $100,000 strike price, accounting for $2 billion worth of open interest. This indicates that some traders are betting Bitcoin’s price will fall to that level. Conversely, call options are clustering at the $120,000 strike price, suggesting bets on potential rebounds or volatility plays.
As of Friday morning, Bitcoin was trading at $109,866 after gaining 0.2% in the past day, according to crypto price aggregator CoinGecko.
### Potential for Increased Volatility
Analysts caution that large open interest expiries like this can trigger waves of volatility. Bitfinex analysts explained to Decrypt previously:
> “Historical precedent suggests that large expiries often suppress volatility leading into the cut-off, then result in a clearer directional move in the 24-72 hours that follow.”
Even after the recent flash crash, the market still carries significant leverage, which could set the stage for another cascade event.
### Understanding Cascading Liquidations
Cascading liquidations occur when Bitcoin’s price suddenly drops, forcing leveraged long positions — traders using borrowed capital to bet on rising prices — to be closed automatically. These forced sellers add downward pressure on the price, which can trigger additional liquidations in a domino effect until the excess leverage is removed from the market.
Carlos Guzman, a researcher at GSR, explained to Decrypt after the October 10 crash:
> “[These levels of leverage] create the potential for a cascade dynamic. People take significant leverage that might seem individually rational. If one person got liquidated in isolation, that’s fine; there might be liquidity in the market to patch that, and it won’t be the worst. But if one liquidation leads to another liquidation, and another liquidation, then you’re absorbing all of the market’s liquidity.”
### Market Factors to Watch
Bitcoin investors are still digesting the latest Consumer Price Index (CPI) report from the Bureau of Labor Statistics, which was originally scheduled for October 17 but delayed due to the ongoing government shutdown. Now, attention is turning to next week’s Federal Open Market Committee (FOMC) meeting.
Traders believe there is a 97% chance the FOMC will approve another rate cut on Wednesday, according to the CME FedWatch Tool.
Meanwhile, flows into Bitcoin ETFs have softened since the start of the month. The first week saw $2.7 billion in net inflows, which reversed to a $1.2 billion outflow in the second week following the October 10 deleveraging event. So far this week, Bitcoin funds have recorded $356 million in net inflows, according to data from asset manager Farside Investors.
### Outlook on Open Interest and Price
Bitfinex analysts emphasized that the slow rebuild in open interest does not indicate waning conviction in Bitcoin:
> “In fact, large open interest wipes amounting to 20-40% of the total across all strikes usually resolve in higher prices after the flush is over. The time horizon for this is multiple months, and a consolidation period is completely normal. Even if we are nearing the end of our bull trend, we do not believe the top is in now.”
It’s worth noting that the notional value of expiring options may still fluctuate significantly before the expiry date next Friday. Traders are gradually rolling their positions to November contracts, while one-week and one-month Put-Call skews remain elevated at 5% and 4%, respectively.
The market has repriced the skew lower after a mid-month rally, as two Fed rate cuts by year-end are now fully priced in following softer-than-expected U.S. inflation data.
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With a record-breaking $31 billion in options expiring and the market’s leverage levels still substantial, investors should prepare for potential volatility as the October expiry approaches.
https://decrypt.co/345888/bitcoin-options-record-31-billion-set-expire-halloween
