Deribit prepares for historic $1 billion options expiry next week

Next week will be historic for the fast-growing cryptocurrency derivatives market with a record $1 billion worth of bitcoin and ethereum options expiring on Deribit.

In options trading, traders can make bets on contracts that expire in different months. Bitcoin options expiring in June make up the biggest portion of Deribit's open interest with 69% of such contracts set to expire during the course of the month, according to data pulled from Skew on Tuesday. On June 26, more than 70,000 contracts will expire. More than 290,000 ethereum options are set to expire on the same day.

Such a large expiry event could result in outsized market volatility as traders unwind their positions. Many other traders, however, will likely just roll their contracts to the next month. Ahead of next week, Deribit has raised the BTC margin requirement for certain clients. Such a move could reduce risk by making it more expensive for traders to roll over. 

"It's smart to raise margin requirements," an industry insider said. "Deribit is reducing risk but it will force some people out of the market."

Deribit will keep an eye on the market's volatility and could adjust margin requirements depending on what happens, a representative of the firm told The Block. Anand Gomes, CEO of trading messaging platform Paradigm, said its unclear if there will be significant volatility, but said there will likely be a lot of options trading ahead of June 26. 

Source: Skew, The Block

The options market for cryptocurrencies has been on a tear since markets bottomed in March. Total open interest — the number of contracts outstanding — in Deribit's bitcoin options market hit $1.2 billion during Thursday's trade, while the total open interest for the market stands close to $2 billion, according to Skew. Deribit commands a 70% marketshare, in terms of notional open interest. 

Source: Skew, The Block

In a sense, the cryptocurrency market is following the lead of traditional markets. As Financial Times' journalist Robin Wigglesworth noted in a tweet, a large number of options in equities are expiring Friday. 

According to Goldman Sachs, June 19 is the third largest non-December expiration of SPY options on record. 

Source: Robin Wigglesworth