Cryptocurrency options Market makers influence Bitcoin price

Cryptocurrency options Market makers influence Bitcoin price

Gamma refers to the speed of change in delta – sensitivity of the option’s price to changes in the price of the underlying asset. In other words, gamma measures the rate of change in the option’s price relative to changes in the spot market prices.  Thus, market makers always take the opposite side of investors’ trades and maintain a market-neutral portfolio by buying and selling the underlying asset as the price swings. This act of balancing books is known as “gamma hedging” in options parlance.  Holding a long put position is considered a long (positive) gamma trade, as the option starts gaining value at a faster rate with the drop in the price of the underlying asset, thereby making money for the buyer and loss for the seller (holder of short gamma position). 

Options market makers are individuals or entities with a contractual obligation to maintain a healthy level of liquidity on an exchange. They make sure there is enough depth in the order book by offering to buy or sell a call/put option contract at any given point in time.  The episode shows how the growing trade in cryptocurrency options in recent months has become a force to reckon with for participants in the underlying spot market for bitcoin, with monthly expiries proving to be a catalyst for price volatility. According to data source Skew, the options market has exploded in the past 12 months, with the open interest rising from $50 million to over $10 billion. 

For example, if a trader wants to buy a bitcoin call at the strike of $80,000 right now, and there is no matching sell order, the market maker will step in and sell the $80,000 call, facilitating the transaction. A call option gives the holder the right but not the obligation to buy the underlying asset at a predetermined price on or before a specific date, called expiry. A put option gives the right to sell.  “Market makers were heavily short puts in the range of $52,000 to $50,000, and I estimate were forced to sell nearly 2,900 bitcoin during the crash to offset the short gamma exposure,” Collins told CoinDesk in a Twitter chat. “That likely exacerbated the bearish move.”

Data provided by Collins shows estimated dealer inventory fell by 2,900 BTC during bitcoin’s price slide. The inventory estimate represents the number of bitcoins shorted in the spot and futures market. (One BTC futures contract represents one coin on major exchanges. CME’s contract size is 5). Greg Magadini, CEO and co-founder of options analytics platform Genesis Volatility, agreed with Collins’ theory in a Telegram chat, stating that many traders were holding long put positions or bearish bets at $50,000 and $48,000.  Source: Fredrick Collins

Market makers estimated inventory According to Collins, market makers were short gamma (sellers of puts) at $52,000-$50,000 on Wednesday. As bitcoin started falling, the negative gamma exposure became a pain: Puts sold at the aforementioned strikes began gaining value, signaling losses for the market makers. Thus, market makers responded by selling bitcoin in the spot/futures market.

The News Highlights

  • Cryptocurrency options Market makers influence Bitcoin price
  • Check the latest News news updates and information about business, finance and more.
Disclaimer: If you need to edit or update this news from compsmag then kindly contact us Learn more

For Latest News Follow us on Google News


Latest Headlines
  • Show all
  • Trending News
  • Popular By week
Lordstown Motors takes on 'Voltage Valley' on a wild trip after financial uncertainty reveals

Talaris Therapeutics Announces First Quarter 2021 Financial Results and Provides News Updates

Program Updates and Milestones Added to the Russell 2000® and Russell Microcap® Indexes. In June 2021, it was announced that Talaris would be added to the ...
The Dunkirk Foundry Agreement provides a window into GFG's complex financing web

Your COVID-19 vaccine will have the greatest impact outside the US

Meanwhile, the U.S. has become a mixed bag of highly vaccinated and highly unvaccinated populations. For those hesitant of newer platforms like the messenger ...
Atlantic Financial Federal Credit Union Approved to Expand Membership |  Credit Union Journal

Atlantic Financial Federal Credit Union Approved to Expand Membership | Credit Union Journal

The organization uses the CO-OP shared branch ATM network that operates 30,000 surcharge-free ATMs at convenience stores nationwide. AFFCU’s membership ...
New restaurants arriving at Jefferson Pointe bring hope to nearby businesses

New restaurants arriving at Jefferson Pointe bring hope to nearby businesses

“It kind of makes you wonder what’s going to happen to the mall sometimes because there are so many empty stores,” said Raber. “So I think with these ...
Crypto Shadow Banking explained and why 12% of earnings are common

News Owners Say Recent Efforts to Small News Markets Help Local Economy

Kim hoped businesses were able to connect with their customers to make sure they would thrive during the colder months, without outdoor events. “We really ...
Apple Has Launched Subscriptions For Podcasts

On June 15th, Apple will introduce a global podcast in-app subscription service

The Verge reports that the global launch of in-app subscriptions and channels is scheduled for June 15. New Delhi: Apple, which pressed the delay button on ...
The multiplayer in Halo Infinite is the most ambitious Xbox and PC experience yet:

The multiplayer in Halo Infinite is the most ambitious Xbox and PC experience yet:

Xbox’s ticket to connecting with its players is Halo Infinite’s multiplayer. The Xbox Series X had a disappointing launch (to say the least). Thankfully, ...
Samsung Galaxy S21 update boosts camera performance

With the July 2021 update, Samsung will address difficulties with Android Auto on its phones

Various Galaxy S21 users say that Android Auto crashes when they unlock their phone. It appears that the issue isn’t limited to just the Galaxy S21 series. ...
Secretary of State warns of misleading business direct mail

Four-week extension of the British blockade ends business hopes

“ News have spent thousands on ordering food and drink, selling tickets and marketing events in preparation for this date, while restaurants and bars have been ...
In this new Hitman Sniper game for mobile, Agent 47 is missing

In this new Hitman Sniper game for mobile, Agent 47 is missing

The first Hitman Sniper has been available for Android and iOS for more than a few years now. And it features the franchise’s familiar character, Agent 47. ...
Show next
Compsmag - Latest News from tech, business and health
Logo