This is the biggest pain point for Bitcoin and Ethereum in the current cycle

• $1.3 billion of Bitcoin options are set to expire on October 28 with most holders finding the paper they were written on worthless.
• Ethereum options worth $1.1 billion are also set to expire, two days after the altcoin ushered in a new price rally. 
• Ethereum’s historical volatility has hit a monthly high of 57.35% in light of the massive breakout in the altcoin.

According to data from crypto options and futures exchange Deribit, on October 28, a larger-than-average $2.4 billion worth of Bitcoin and Ethereum options are set to expire. Over the past week, Ethereum price witnessed a massive recovery, and Bitcoin price climbed above the $20,000 level. 

Many option traders are likely to have been caught out by the bullish pivot, with data from options exchanges revealing a higher ratio of traders purchased bearish put contracts, betting on BTC and ETH price going down, than bet it would rise. The majority of losers will see their put options expire worthless, whilst those who bought bullish call options are set to celebrate. 

Also read: Bitcoin price: BTC approaches key level at $20,750, analyst predicts decline in the asset

Large volume of Bitcoin and Ethereum options expire on October 28

Data from Deribit, a crypto options exchange reveals a particularly large volume of Bitcoin and Ethereum options are set to be cashed in – or not, today.. $1.3 billion worth of Bitcoin options and $1.1 billion in Ethereum options reach their expiration date on October 28, 2022. The total Bitcoin option market cap at any given time rarely rises above $10 billion so that puts this mega-expiry into perspective. Indeed, it was only back in June 2020 that the record for a Bitcoin options expiry stood at $1 billion. 

Today options expiry is also significant due to the volatility in Bitcoin and Ethereum prices in the week leading up to the expiration date. 

Open interest by strike price on Deribit

Bitcoin and Ethereum maximum pain point

The past week saw Bitcoin price breaking past the $20,000 barrier and Ethereum yielding 17.5% gains for holders. Indeed, with its rapid price movements, Ethereum’s historical volatility has hit 57.35%, a monthly high. 

This is great news for those who bought BTC and ETH call options but not so great for those who bought put options. The Put/Call Ratio for the day for BTC stands at 0.85 for October 28 and shows the majority were buyers of puts and thus are likely to be feeling the pain as their contracts expire worthless. For Ethereum the Put/Call ratio stands at a lower 0.68 suggesting even more traders betted wrongly that the market would fall and will be drinking their cups of woe.

Colin Wu, a Chinese journalist has evaluated the data from Deribit’s charts on Bitcoin and Ethereum options and identified the $1,400 level as Ethereum’s biggest pain point, meaning if ETH remains above that level it will cause the greatest pain for bearish put holders. For Bitcoin the biggest pain point is the $19,500 level. 

The Put/Call ratio is considered an indicator of trader sentiment and a value greater than 0.7 which signal traders are buying more puts than calls, is usually interpreted as bearish. Therefore, at 0.85 and 0.68 trader sentiment for Bitcoin and Ethereum actually remains overall bearish. 

However the indicator can also be used in a contrarian fashion with volatile changes higher or lower signaling reversals on the horizon. It is in this way that it might have signaled the recent swing higher in price for the two cryptos. Further declines are unlikely but they might eventually give another contrarian bullish signal too.