Bitcoin $20,000 put option ranks as the third most favored strike price prior to quarterly expiration.

Close to $600M in deep out-of-the-money puts underscores tail-risk positioning, although inflows appear to favor volatility strategies over outright bearish positions.

OI By Strike Price (Deribit)

Key points:

• The $20,000 put on bitcoin ranks as the third most favored strike, with $596 million in notional value, alongside significant positions at $75,000 and $125,000 on Deribit.
• In spite of geopolitical tensions, options data, which includes a 0.63 put-call ratio, indicates that the market remains marginally bullish overall.

Approximately $600 million in $20,000 bitcoin put options has emerged as the third most sought-after strike ahead of Deribit’s quarterly expiry, illustrating how traders are preparing for extreme downside risks due to the conflict in the Middle East.

A put option provides the holder the right, but not the obligation, to sell bitcoin at a specified price. With bitcoin trading below $70,000, the $20,000 strike is classified as deep out of the money, meaning it would only appreciate in value during a significant market downturn, or a 70% drop from current levels.

With around $596 million in notional value, the total dollar value of underlying contracts, is focused on the $20,000 strike, establishing it as one of the three most prominent positions. The others are at $75,000, with $687 million, and $125,000, with $740 million, indicating a broad range of expectations concerning both downside and upside scenarios.

At first glance, significant positioning in a $20,000 put option may imply concerns about a market collapse. However, the market’s structure is more complex.
A considerable portion of this activity is likely driven by traders selling these far out of the money puts to earn premiums, reflecting the low likelihood of bitcoin dropping to $20,000 rather than serving as a direct hedge against a market crash. Essentially, it is frequently a strategy related to income generation or volatility positioning, rather than a straightforward bearish outlook.

The overall notional value of bitcoin options set to expire on Deribit is $13.5 billion. Even though the market is experiencing extreme fear, the options market still appears slightly bullish, with a put-call ratio of 0.63, suggesting more call options than puts, which are typically used to express bullish sentiments. Total open interest is at 195,719 BTC, with 120,236 BTC in calls and 75,482 BTC in puts.

Additionally, the max pain level, the price at which the largest number of options expire without value, stands at $75,000, which could potentially function as a magnet as the expiry date approaches. As options market makers frequently hedge around this level, it may pull the price towards where the most contracts expire worthless.