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Options contracts tied to Bitcoin are set to expire; something that analysts believe could cause wild bitcoin price swings. Options worth about $4 billion are set to expire on Friday.

As of today, the quarterly expiry on crypto options exchange Deribit comprises about 81,000 call options worth about $2.24 billion and about 60,000 put options worth about $1.73 billion. Deribit accounts for about 80% of the crypto options contracts around the globe and the quarterly options are expected to be settled on Friday at 08:00 UTC.

On Deribit, each bitcoin options contract represents 1 BTC, meaning in total we have about 141,000 BTC options contracts on the exchange.

Friday, March 31, 2023, marks the end of the first quarter of 2023 and is the date when most quarterly crypto options contracts will be expiring. According to the CEO and co-founder of TDX Strategies, Dick Lo:

“There is massive quarterly options expiry tomorrow. The street is potentially short gamma on the top side. That plus thin liquidity could lead to big chops in both directions.”

The bitcoin options contracts give the purchaser the right but not the obligation to purchase or sell bitcoin at a predetermined price on or before the expiry date. Call options give the purchaser of the options the right to buy bitcoin while put options give the purchaser of the options the right to sell. Bitcoin.

Crypto options are used by investors to hedge positions in the spot or futures market against adverse price movements. Market makers on the other hand provide liquidity to an order book by creating buy and sell orders.

The market makers earn money from the spread (difference between the bid and ask price) and often trade the underlying assets to keep their net exposure market neutral. In this context, the market makers selling their options contracts are expected to buy bitcoin in the spot market to cover their positions if the bitcoin price rises.

Normally, the hedging activity of market makers in the lead-up to major options contracts expiries like the one expected on Friday often causes a surge in volatility, which could in turn lead to huge bitcoin price swings.

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