Bitcoin derivatives poised for 'quadruple witching' volatility as Friday's quarterly options expiry approaches, analyst says
Quick Take
- As Friday’s quarterly options expiry approaches, bitcoin derivatives brace for heightened volatility, driven by the phenomenon of a “quadruple witching.”
- A large portion of the open interest on Deribit ahead of Friday’s expiry is in-the-money (ITM), which could lead to increased trading volume, the analyst added.
The bitcoin options market is braced for heightened volatility, with over 20% of open interest on Deribit set to expire in-the-money (ITM), several analysts said to The Block on Wednesday.
"As we approach Friday’s large quarterly expiry, potentially influenced by ‘quadruple witching’ and related volatility in U.S. markets, over 20% of Deribit open interest is set to expire in-the-money, equating to over $2.7 billion, total notional size of Friday's options expiry is over $10 billion," Deribit CEO Luuk Strijers told The Block.
A quadruple witching occurs four times a year, around the end of each quarter, when contracts for index futures, index options, options, and futures all expire simultaneously. This event often leads to increased volatility and trading volume. Because a significant portion of this open interest is usually in-the-money, this suggests there is potential for large-scale trading activity as these contracts approach expiration.
Strijers added that as short-term bearish sentiment is evident in the distribution of bitcoin open interest, "a positive shift is anticipated by traders for bitcoin by July 12 by looking at options skew."
Open interest by strike price of bitcoin options. Image: Deribit.
However, according to Bitnomial Exchange President Michael Dunn, market participants have mostly rolled their June futures contracts to July, keeping open interest and avoiding contract expiration.
"This could indicate that traders are still continuing to take advantage of elevated prices farther out on the curve to lock in the basis. Typically traders wind down these positions when the opportunity to capture higher future prices declines," Dunn told The Block.
Bitcoin changed hands at around $60,972 at the time of writing, having traded lower by 2% in the past 24 hours, according to The Block’s price page.
The price of ether decreased by 1.2% to $3,342 in the same period. The global cryptocurrency market cap Wednesday was $2.36 trillion, dropping 1.1% in the last 24 hours, according to Coingecko data.
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