If There Is No Roll Watch Out

Options Update: 15 MAR 2024

The options market went from wild to wilder.

Hard to believe that six weeks ago we were trading in the low $40k region following the initial wave of ETF selling.

Many were wondering if Bitcoin volatility would ever return.

Since that time it's been no secret that both Bitcoin, and the options market in particular, have experienced an explosion of volatility.

We have both call option open interest and BVIV (Bitcoin’s implied volatility index) reaching levels not witnessed since 2022. It’s proving that this market is alive and full of opportunity.

However, it appears the time for caution is finally approaching as we head into next week’s FOMC and shortly after March 29th’s quarterly expiry.

Below we see this March 29th expiration’s current open interest across all contracts. The cals positions open are measured by the green lines, and puts are measured in purple. 

With over $8.5 billion in notional value, this makes it one of Bitcoin’s largest expirations ever  And the majority of this notional value positioning is owed to calls that are in the money, with the largest strikes being at $65,000, $60,000, and $50,000 (red box).

This means the owners of these calls are currently deep in profit considering the majority of them were purchased back in February or earlier.

With the market now rejecting off $70,000 resistance this week, the call owners will be faced with a decision into next week’s FOMC and the end of the month expiry: close and possibly roll the positions to longer dated options, or leave them open and face the possibility of their once profitable positions expiring worthless. 

There is also the possibility that they could begin to hedge with call selling and or put buying.  But we haven’t seen volumes to suggest that.

When and if these positions unwind it could cause some heavy downward pressure on price in the weeks to come, and is something to be mindful of if holding any kind of leveraged risk as Q1 draws to a close. 

If you’re currently sidelined from options, be mindful that if a correction were to follow this  rebalancing,  favorable entries on longer dated out-of-the-money calls with expirations for later in the year may be available at a deep discount to their current premiums.

We’ll be keeping a close eye on the flows to see how this plays out into early next week, and be sure to tune into Tuesday morning’s episode of the Trading Pit where we’ll have more insights to share. For those that are clients of Jlabs Digital, you will keep receiving options market updates related to this topic.

Until then, trade safe.

Watching the tape,

JJ