Crypto volatility, options expirations create perfect storm

Billions of dollars in options contracts are going to expire this week, and the recent rally has caught short sellers off guard

article-image

Vintage Tone/Shutterstock modified by Blockworks

share

With dropping volatility and looming end-of-quarter options contracts expirations, crypto markets are poised for an interesting week. Analysts say the recent rally has investors rethinking their positions. 

Exchange Deribit has around 150,000 bitcoin options contracts worth about $4.5 billion set to expire on Friday. The exchange also has about $2.3 billion worth of ether (ETH) options contracts expiring on the same date. Bitcoin (BTC) and ether were trading at $30,701 and $1,896, respectively, at time of publication. 

“BTC Max Pain at a significantly reduced level of $26,000 might alleviate the prevailing downward pressure on prices following the expiration,” Shaun Fernando, chief risk officer at Deribit, said. “With an impressive open interest of over $350 million at the $30,000 strike, the approaching quarterly expiration promises an exhilarating conclusion, carrying the potential for price turbulence amidst diverse gamma hedging strategies.”

Analysts agree, open interest is a key area to watch. 

“Cryptocurrency derivatives’ open interest has recently reached its highest levels since the FTX incident in late 2022, with a significant number of positions expiring and settling this week,” Youwei Yang, chief economist at Bit Mining Limited, said.

“When considering implied volatility, the magnitude and slope of the three strong rebounds this year (January, March, and June) have progressively weakened, indicating a lack of greed in the market.”

But, as the end of the second quarter looms, the volatility curve for the lower end of bitcoin is tilting upwards again, with the implied volatility of put options surpassing that of call options.

“This indicates that the options market has transitioned from greed to fear, as market participants become increasingly concerned about a market decline,” Yang added. 

Prior to the rally earlier this month, bitcoin dipped below $26,000, pushing traders to bet against a rally using options contracts. Bitcoin’s roughly 22% rally since June 14 was not what short sellers had anticipated. 

Now, the token looks poised to be trading over the $30,000 level on Friday, when options contracts at Deribit expire at 8:00 am UTC. 

“Basically, traders have opened a huge amount of calls at greater than $30,000,” Jan Sammut, vice president of marketing at Origin Protocol, said. “Therefore, market makers and dealers are holding a large amount of negative, or short, gamma.” 

If bitcoin stays above $30,000, Sammut said, traders are going to buy on the spot market, fueling a gamma squeeze. But, if bitcoin dips below $30,000, traders are going to sell on the spot market to cover their positions. 

“In summary, this impending expiration is one to break out the popcorn as you prepare to witness the unfolding drama,” Deribit’s Fernando said.

Updated Jun. 28, 2023 at 8:59 am ET: Shortened headline.


Get the news in your inbox. Explore Blockworks newsletters:

  • Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
  • Empire: Start your morning with the top news and analysis to inform your day in crypto.
  • Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
  • 0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
  • Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
  • The Drop: For crypto collectors and traders, covering apps, games, memes and more.
  • Supply Shock: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.
Tags

Upcoming Events

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

Research

article-image

Should higher-fidelity graphics be the goal for crypto games — which result in much higher costs and risk?

article-image

From Mel B to Neil deGrasse Tyson, BTC has seen its share of strange celebrity sightings

article-image

Circle’s roadshow will be the real test for the stablecoin issuer

article-image

PitchBook’s Robert Le said crypto projects focused on institutional use cases are the focus

article-image

The decentralized AI firm designed ODS to be owned by the community in an effort to promote more decentralized AI

article-image

The non-profit’s launch and big-name hires aim to grow Solana’s footprint in Washington