Derivative Drama

Over the last few weeks, BTC has made some impressive moves off the bottom. However, options and futures derivatives often have more volume than spot markets and can sometimes drive moves in the underlying asset.

Has the tail been wagging the dog again? Let’s see!

Quarterly futures expirations are one of the safest ways for basis traders to earn fixed income from Bitcoin, and large option expiries line up on these dates, as option dealers often use futures markets to hedge their books. Recent times have been no exception.

The last big expiry, option dealers were unusually short ~15.9K BTC in delta. Without getting technical, this meant dealers needed to buy BTC to hedge their positions if price accelerated upward. With heavy calls above $85K, we gamma squeezed upwards as dealers hedged with BTC.

However it was probably done in the futures market. Open Interest (in blue) shot back up to near all-time highs, but price diverged (red line showing divergence), still more than 10K off the previous ATH. This may give us short-term clues as to what happens next.

As history shows, large reductions in Open Interest (in red) often led to short-term price drops as dealers dump their hedges. April 25th saw $7.2 billion in options expire- however this time, price moved up. The sliver of hope might be hiding in our current setup.

The typically bleak option expiry might be on a new course and we’ve printed a higher high in Open Interest. We printed several higher highs in OI back in September 2024 too. Something that occurred just before the previous run-up from the $60K region to the recent ATH.

Either way, it looks like Bitcoin’s quiet stretch may be behind us — and we’re back on the rollercoaster.

Time to strap in and buckle up!