KEY POINTS

  • 48% of Bitcoin options are about to expire Friday
  • Analysts say more volatility is expected in the coming days
  • Bitcoin is correlated with tech stocks

As Bitcoin fails to reclaim the $11,000 threshold, more volatility is expected in the coming days, with options expiration a likely price factor.

Bitcoin closed at $10,923 Sunday, reversing almost equal to what was gained the previous day when it breached past $11,077. The decrease broke the upward trend experienced by the benchmark cryptocurrency in the last seven days. It is currently trading sideways at $10,927. 

The volatility is expected to continue as 48% of Bitcoin options are about to expire Friday. This is half of all of Bitcoin options. Even though the entire value locked at the options is around $1.9 billion, it is rare to have a heavy concentration on short-term options, Cointelegraph reports. While there is no level to be sustained in options, large open interest and liquidity would allow large players to be in the market and enable more complicated trading strategies, the report says.

Options are financial derivative instruments that allow buyers to have the right (not obligation) to purchase assets at a set price at a set time in the future, for which they pay a premium to sellers. If on the specified date, the price of the contract is higher than the set price, the buyer receives profit when they execute the contract. If they refuse to buy, they lose the premium they originally paid.

Volatility is another factor to determine whether Bitcoin is about to have a big move or not. It also affects how much premium is paid in options trades. High volatility means buyers will have to pay a higher premium. At the moment, Bitcoin's implied volatility is at 63%, which analyst Marcel Pechman has attributed to, among other things, its correlation with tech stocks. "Regardless of the rationale behind the correlation, it partially explains the recent reduction in  BTC volatility," Pechman added.

Bitcoin is not the only cryptocurrency with half the options setting to expire Friday as Ethereum has the same amount expiring this September and in December. 

The options market is said to have an effect on the spot market but that's not always the case. For example, bitcoin price barely moved on June 26. But it made a big move on July 27, four days before that month's expiry, when it plowed past $9,000 to reach $11,000 in one day.

bitcoin-2007769_1920 Bitcoin Photo: Bitcoin