TI Weekly Research – Great Delivery Day

June 25 is a special day in the crypto asset market. Usually, every Friday marks the peak delivery of derivatives, with price fluctuation to a certain extent. On June 25, the futures and options expiry dates will encompass the following:

  • The current week
  • The following week
  • June 
  • July 
  • 2021 Q1 next quarter
  • And 2021 Q2 current quarter

Additionally, a large number of institutions will carry out options allocations around this day. At a time when the market appears to be sluggish after a series of blows, the movements of institutional and professional investors have become increasingly important indicators. This information may yield certain “clues” about the market trend in the second half of 2021. 

Recent transactions of BTC options, source: metrics.deribit.com
Before and after delivery: trading volume rises under the supervision

Around June 25, derivatives information caused the prices of mainstream crypto assets to fluctuate sharply, adding to an already volatile market. Due to strict regulations and more bearish news,  Bitcoin’s price once fell to around $29,000, while the weekly spot trading volume rose to $82.19 billion compared to last week. This all occurred amidst the selling pressure of shorts and moves from whale investors.

Bitcoin price changes in the past seven days, as of 5:00 am on June 25. Source: tokeninsight.com

Short-term speculative sentiment has also risen. Bitcoin’s historical volatility has increased to more than 100 after a month or so of decline. Another indicator shows the weekly volume of perpetual contracts reaching $622.8 billion, pointing to a recurring rise in speculative sentiment. 

Changes in the volatility of Bitcoin index prices and perpetual contract prices, as of 5:00 am on June 25. Source: gvol.io

A similar situation can be seen with Ethereum. After three months, the price of Ethereum once again returned to a level below $2,000, while weekly trading volume reached $50.78 billion due to selling pressure. It experienced an increase of 35.52% compared to last week, and contract trading reached $209.6 billion (increasing 43.76% compared to the previous week).

Ethereum price changes in the past 90 days, as of 5:00 am on June 25. Source: tokeninsight.com

In both the perpetual contract market and options market this week, there were many short-term large-value options trades. On June 21, large-value traders purchased a significant number of short-term Bitcoin put options on Deribit, with strike prices ranging from $28,000 to $34,000.

In the Ethereum market, traders also purchased short-term large-value put options on the same day, with strike price of $2400 and face value of 300 ETH. Judging from the recent price trend, it is undoubtedly a small profit.

The large transaction of Bitcoin options on Deribit on June 21. Source: gvol.io

The large trading volume of Ethereum options on Deribit on June 21. Source: gvol.io

According to data from Deribit, a total of $4 billion in options contracts expired on Friday. Among them, BTC was $2.56 billion, and ETH was $1.42 billion. These were lower than the amounts on the “Great Delivery Day” in Q1 (March 26) and the month-end delivery date on April 30. 

However, the importance of this delivery day is even greater than that of the previous two. The reason being that this options delivery contains the contracts of the current week, next week, current month, next month, 2021 Q2 current quarter, 2021 Q1 next quarter.

At the same time, the next cycle of options and futures allocation will be carried out before and after this delivery, which is why this delivery day is worth studying. The current options and futures data indeed seem to have shown some clues about the market’s future development.

What’s Next For Bitcoin?

Let’s ignore the turbulent macro information. We already know that inflation reduction and interest rate hikes have nine months remaining before their impact is fully revealed. The Whales’ movements in the second half of 2021 may play a more important role. From their movements, we can get a glimpse of some pressing information:

Bitcoin options transactions in the past 30 days. Source: gvol.io

On June 22, there was a large Bitcoin transaction of close to 7,000 contracts. Based on the date, it is undoubtedly from institutional or professional investors. So, what did they do during this time?

Bitcoin options trading on June 22. Source: gvol.io

Pay attention to the two largest transactions. One is the purchase of a $20,000 call option that expires on June 25, and the other is the sale of a put option that expires on March 25 of the following year with a strike price of $25,000. At that time, the price of Bitcoin was around $32,000. It means that some whales believe that the price of Bitcoin will not be less than $25,000 in this six-month period and that it will not be less than $32,000 after a short-term correction.

The movement of the other whale is more worthy of attention: he sold 1,200 call options contracts with the strike price of $64,000, and bought 800 call option contracts with the strike price of $70,000. The execution times were respectively December 31 and March 25 of the following year. The price of deep out-of-the-money options is relatively low, and the operation of deep out-of-the-money options can indicate the whale’s prediction of the market.

First, he believes that the price of Bitcoin will not exceed $64,000 at the end of the year, so he chooses to sell options to obtain a premium. As for buying $70,000 of options, it may be to hedge the possible price increase risk.

What’s Next For Ethereum?

Ethereum’s trends are mostly concentrated in the short term. It is worth noting the operation on June 18:

Some large-value transactions of Ethereum options on June 18. Source: gvol.io

On the same day, 6,500 put options expire on July 30 with a strike price of $1,600 traded. Meanwhile, the transaction records of large call options were mostly centered on the quarterly contracts that expire on September, 24 and the strike price was around $2000-2500. Professional investors do not seem to be optimistic about the short-term performance of Ethereum. But they are more confident about performance in the long term. The skewness also shows a similar situation: Ethereum forward options have been incorporating optimism into their pricing.

The performance of Ethereum options skewness. Source: gvol.io

Judging from the operations of the whales, we may be facing a more turbulent market in July. The big investors’ bearishness on Ethereum seems to be due to their concerns and bets about the upcoming London upgrade.

On the other hand, the limited optimism for Bitcoin is only long-term, and the recent low volatility of Bitcoin’s price will continue. The volatility skewness turned negative in recent days, indicating that the whales have re-adjusted their market expectations for mainstream crypto assets. 

In all, the apparent premium of the month-to-month Bitcoin and Ethereum futures seems to herald the market’s mid-third quarter revival after the turmoil.

Changes in Bitcoin options volatility in the past 30 days. Source: gvol.io

Futures trading and premium/discount on Deribit, June 25. Source: gvol.io

Post a Comment