The crypto market is bracing for heightened volatility as nearly $1.6 billion worth of Bitcoin (BTC) and Ethereum (ETH) options expire today.
This event coincides with the Federal Reserve’s recent decision to cut interest rates by 50 basis points (bps).
Fed’s Decision Fuels the Crypto Market Rally Ahead of Major Options Expiry
According to data from Deribit, 20,037 Bitcoin options contracts worth approximately $1.26 billion will expire on September 20. These contracts have a put-to-call ratio of 0.85 and a maximum pain point of $58,500.
Similarly, Ethereum’s options market is set to expire with 125,046 contracts worth $308.16 million. Today’s expiring Ethereum contracts have a put-to-call ratio of 0.65, with a maximum pain point of $2,350.
Read more: An Introduction to Crypto Options Trading
In options trading, the maximum pain point refers to the price level at which option holders would suffer the largest losses. It is essentially the price at which the highest number of options (both calls and puts) would expire worthless, inflicting maximum financial “pain” on traders. On the other hand, the put-to-call ratio gauges market sentiment by comparing the number of put options (bets on price declines) to call options (bets on price increases).
Greeks. live’s recent analysis outlined the impact of the Fed’s decision to cut rates for today’s expiring crypto options contracts. The analysts noted that the Fed’s move was largely expected and aligned with macroeconomic forecasts.
“Implied volatility declined significantly across all major maturities, with ultra-short-term IVs falling by over 25%, as short-term short-selling expectations by large investors fell short,” they wrote.
Looking ahead, Greeks.live also noted that there will be another interest rate meeting on November 8 and December 19 this year, where the market expects a cumulative 100 bps rate cut. The next rate cut could coincide with the US election, increasing the likelihood of heightened market volatility.
BeInCrypto reported that this week’s rate cut has positively impacted the crypto market. Following the decision, Bitcoin surged from the $59,000 level to surpass the $63,500 mark.
Similarly, Ethereum also experienced a significant increase during the period. Data showed that ETH skyrocketed from $2,293 to as high as $2,482.
However, both assets have now stabilized. At the time of writing, Bitcoin and Ethereum are trading at $62,890 and $2,450, respectively.
Read more: 9 Best Crypto Options Trading Platforms
Despite the positive momentum, traders are advised to remain cautious. Historically, options expiration often leads to short-term instability in the market. The next few days will be crucial in determining whether Bitcoin and Ethereum can sustain their upward trends or if a period of correction is imminent.
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