- Bitcoin options worth $3.7 billion will expire this week.
- If the holder lets the options expire without using them, he will probably lose the premium he paid to buy the option.
- The COVID-19 pandemic has helped BItcoin attract the interest of both institutions and individuals.
3.7 billion in Bitcoin Options will expire this week, on the 29th of January, an event that is likely to further fuel Bitcoin volatility.
Bitcoin price hit a record high earlier this month at $41,940.09. The high, however, did not last long as prices dipped by 43.905 to $23 543. Hence, proving once again that Bitcoin is a highly volatile investment.
To hedge against this downside, some investors opt to buy Bitcoin options. The option protects the holder from possible future loss. A call option allows the holder to buy at a lower than market price. On the other hand, a put option allows the holder to sell at a higher price.
As holders decide whether to exercise their options or not, there is a rise in volatility. This volatility results from the downward and upward pressure on price as that could result from option exercise.
Sometimes, a holder opts to let their option expire without using it. In this case, the holder will lose the premium they paid to buy the option.
The expiry date is the day a holder can choose to either use their right or not. For this reason, the market records some volatility a day or two before the expiry date.
According to current trends, there has been a higher interest in call options than put options. A trend that shows that investors are expecting Bitcoin prices to continue to rise.
The rise in option holders also shows that the crypto industry is becoming more accepted by institutional investors.
As Nicholas Pelecanos, Head of Trading at NEM, noted,
Due to the complexity involved with trading, options volumes give us a good indication of the number of sophisticated investors that have been trading Bitcoin.
Notably, the COVID-19 pandemic has helped drive interest in Bitcoin. Many governments have embarked on inflationary actions by offering economic stimulus packages. This move was to help companies and individuals survive the pandemic. The action, however, has negatively impacted currency values and led to investors seeking alternative investment options.