Bitcoin has rallied past $110,000, led by renewed optimism about the U.S.-China trade relations. The bounce means BTC is now trading at levels where market makers could add to price turbulence ahead of Friday’s multi-billion dollar options expiry.
Data from the Deribit-listed options market, tracked by Amberdata and Deribit Metrics, show that $13 billion in bitcoin options – calls and puts – are set to expire Friday. Notably, dealers and market makers hold negative gamma exposure at the $100,000 and $111,000 strike prices, which means they have sold (written) more options than they have bought at these levels.
In such scenarios, market makers hedge their positions by trading with the market—buying as prices rise and selling as prices fall—to maintain net delta (market)-neutral exposure.
Their hedging activity typically intensifies as the expiry nears. That’s because gamma sensitivity increases as the time to expiration nears, especially for at-the-money (ATM) or near-the-money options, such as those at the $110K and $111K strikes.
BTC dealer gamma distribution Oct. 31 expiry. (Deribit/Amberdata)
The chart shows dealer gamma is largely negative between $105,000 and $111,000, indicating a possibility of heightened trading activity around these levels.
Beyond this range, gamma exposure turns net positive at $114,000.
All told, bitcoin’s next big move may come less from fundamentals than from the mechanical hedging flows of options dealers.
