Bitcoin volatility may rise as options worth $3 billion expire at end of month

Crypto price volatility is expected in the coming week, with about $3 billion of bitcoin options and $1.8 billion in ether options set to expire on Sept. 29. The date is especially notable, as it's the end of both the month, and the quarter. 

Deribit Chief Commercial Officer Luuk Strijers highlighted similarities between the cryptocurrency market and traditional finance as they approach options expiry dates, particularly quarterly expiries, which he noted "can result in massive trading volumes and volatility."

While the Bitcoin Volatility Index, which tracks the view on volatility over the next 30 days held by bitcoin option traders, is hovering near all-time lows, it has ticked up over the past month, according to The Block's Data Dashboard.

'Amplified market volatility'

"Market maker movements can lead to amplified market volatility, particularly during the time leading up to the expiry of the options," Strijers told The Block, adding that "market makers adjust their hedges to align with changes in the price of the underlying asset." 

While Strijers said the price impact of September's monthly and quarterly expiry would be larger than that seen during daily or weekly expiries, current conditions may not result in particularly strong market moves.

Bitcoin's price was mostly flat on Friday, rising 0.1% to $26,544, according to CoinGecko. The world's largest cryptocurrency by market cap has been flat over the past month, declining 0.4%. 

Effect of institutional players

Institutional participants that use the Deribit derivatives exchange typically exhibit advanced strategies around options expiries, Strijers said, explaining how participants "aim to manage volatility and delta hedge their exposure." This results in these institutional investors "adjusting their hedge positions frequently, potentially impacting bitcoin prices and market volatility."

Options are derivative contracts affording the purchaser the right, though not the obligation, to buy or sell the underlying asset at a predetermined price on or before a specific expiry date. Call options grant the privilege to buy, while put options confer the right to sell.

Investors utilize options for purposes ranging from hedging their positions in the spot or futures market against unfavorable price movements, to speculating on forthcoming trends in valuations and volatility.