Nearly $600 million worth of $20,000 bitcoin puts have become the third most popular option ahead of Deribit’s quarterly expiry, showing how traders are positioning themselves for extreme bearish scenarios due to the Middle East conflict.
A put option gives the holder the right, but not the obligation, to sell bitcoins at a predetermined price. With bitcoin trading below $70,000, the $20,000 strike is considered very out-of-the-money, meaning it would only gain value in the event of a sharp market crash, or a 70% drop from current prices.
Approximately $596 million in notional value, the total dollar value of the underlying contracts, is concentrated in the $20,000 strike, making it one of the three most dominant positions. The others stand at $75,000, with $687 million, and $125,000, with $740 million, highlighting a wide range of expectations in both downside and upside scenarios.
Looking at it nominally, a large position on a $20,000 put option could suggest fears of a crisis. However, the market structure is more nuanced.
Much of this activity is likely driven by traders selling these out-of-the-money puts to collect the premium, reflecting the low probability of bitcoin falling to $20,000 rather than a direct hedge against a decline. In other words, it is often a strategy tied to income generation or volatility positioning, rather than an overtly bearish conviction.
The total face value of bitcoin options expiring on Deribit is $13.5 billion. While the market is in extreme fear, the options market is still leaning slightly bullish, with a call ratio of 0.63, indicating more calls than puts, which are typically used to express bullish opinions. Total open interest stands at 195,719 BTC, with 120,236 BTC in calls and 75,482 BTC in puts.
Meanwhile, the maximum pain level, the price at which the largest number of options expire worthless, is $75,000, which could potentially act as a magnet toward expiration. As options market makers often hedge around this level, pushing the price towards where the largest number of contracts expire worthless.
