TI Weekly Research: Great Delivery Day

TI Research

June 25 is a special day in the crypto asset market. Usually, every Friday is the peak of the delivery of derivatives with price fluctuation to a certain extent. On June 25, futures and options for the current week, next week, current month, next month, 2021 Q2 in current, and 2021 Q1 in next all expire on this date for delivery. At the same time, a large number of institutions also carry out options allocation around this day. At a time when the market appears to be sluggish after a series of blows, the movements of institutional and professional investors have become more and more important, and by tracking certain "clues", the market trend in the second half of 2021 seems to have been hinted.
Recent transactions of BTC options, source: metrics.deribit.com

Before and after delivery: trading volume rises under the supervision

Around June 25, intensive information caused the prices of mainstream crypto assets to fluctuate sharply, and the volatility also rose. Due to strict regulations and various bearish news, under the selling pressure of shorts and large coin holders, the price of Bitcoin once fell to around $29,000, while the weekly spot trading volume rose to $82.19 billion compared to last week.

Bitcoin price changes in the past 7 days, as of 5:00 on June 25, source: tokeninsight.com

Short-term speculative sentiment has also risen: Bitcoin's historical volatility has risen to more than 100 after a month or so of decline, and another indicator that the weekly volume of perpetual contracts reached $622.8 billion, showed that speculative sentiment has picked up again.

Changes in the volatility of Bitcoin index prices and perpetual contract prices in recent month, as of 5:00 on June 25, source: gvol.io

A similar situation can be seen on Ethereum. After three months, the price of Ethereum once again returned to the level below $2,000, while weekly trading volume reached $50.78 billion due to selling pressure, an increase of 35.52% compared to last week, and contract tradings reached $209.6 billion, an increase of 43.76% compared to last week.

Ethereum price changes in the past 90 days, as of 5:00 on June 25, source: tokeninsight.com

Not only in perpetual contract market, but also in the options market this week, there was a large number of short-term large-value options tradings. On June 21, large-value traders purchased a considerable number of short-term Bitcoin put options on Deribit, with strike prices ranging from $28,000 to $34,000. In the Ethereum market, traders also purchased short-term large-value put options on the same day, with strike price of $2400 and face value of 300 ETH -- judging from the recent price trend, it is undoubtedly a small profit.

The large transaction of Bitcoin options on Deribit on June 21, source: gvol.io
The large trading volume of Ethereum options on Deribit on June 21, source: gvol.io

According to data from Deribit, a total of $4 billion in options contracts expired on Friday. Among them, BTC was $2.56 billion and ETH was $1.42 billion, which were only lower than the amounts on the "Great Delivery Day" in Q1 (March 26) and the month-end delivery date on April 30. However, the importance of this delivery day is higher than that of the previous two. The reason is that this options delivery contains the contracts of current week, next week, current month, next month, 2021 Q2 current quarter, 2021 Q1 next quarter, and at the same time, the next cycle of options and futures allocation will also be carried out before and after this delivery, which is why this delivery day is worth paying attention to. The current options and futures data seem to have shown some clues about the future development of the market.

What's next?

Let us ignore those turbulent macro information. Although we already know that inflation reduction and interest rate hikes are certain things, there are at least 9 months to go before these, and the impact will not be revealed in the short term. The Whales' movements in the second half of 2021 may play a more important role. From their movements, we can get a glimpse.

Bitcoin options transactions in the past 30 days, source: gvol.io

It can be found that on June 22 there was a large Bitcoin transaction of close to 7,000 contracts. Based on the date, this is undoubtedly from institutional or professional investors. So, what did they do during this time?

Bitcoin options trading on June 22, source: gvol.io

Pay attention to the two largest transactions. One is the purchase of $20,000 call options that expires on June 25, and the other is the sale of put options that expires on March 25 of the following year with a strike price of $25,000. At that time, the price of Bitcoin was around $32,000. It means that some Whales believe that the price of Bitcoin will not be less than $25,000 in this six months, and that it will not be less than $32,000 after a short-term correction.

The movement of the other Whale is more worthy of attention: he sold 1,200 call options contracts with the strike price of $64,000, and bought 800 call option contracts with the strike price of $70,000. The execution times were respectively December 31 and March 25 of the following year. The price of deep out-of-the-money options is relatively cheap, and the operation of deep out-of-the-money options can indicate the Whale’s prediction of the market: First, he believes that the price of Bitcoin will not exceed $64,000 at the end of the year, so he chooses to sell options to obtain premium. As for buying $70,000 of options, it may be to hedge the possible price increase risk.

Ethereum's trends are mostly concentrated in the short-term. It is worth noting the operation on June 18:

Some large-value transactions of Ethereum options on June 18, source: gvol.io

On the same day, 6,500 put options expire on July 30 with a strike price of $1,600 were traded, while the transaction records of large call options were mostly centered on the quarterly contracts that expire on September 24, and the strike price was around $2000-2500. Professional investors do not seem to be optimistic about the performance of Ethereum in the near future, but they are more confident about the performance of the long-term. The skewness also shows a similar situation: Ethereum forward options have been incorporating optimism into their pricing.

The performance of Ethereum options skewness, source: gvol.io

Judging from the operation of the Whale group, we may be facing a more turbulent market in July: On the one hand, the big investors' bearishness on Ethereum seems to be due to their concerns and bets about the upcoming London upgrade; On the one hand, the limited optimism for Bitcoin is only long-term and the recent low volatility of Bitcoin price will continue. The volatility skewness turned negative in recent days, indicating that the Whales have re-adjusted their market expectations for mainstream crypto assets. The apparent premium of the month-to-month Bitcoin and Ethereum futures seems to herald the market's mid-third quarter revival after the turmoil.

Changes in Bitcoin options volatility in the past 30 days, source: gvol.io
Futures trading and premium/discount on Deribit on June 25, source: gvol.io

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