-
Deribit-listed BTC options were sold to dealers at $90,000 and $100,000 strikes, according to Amberdata.
-
The rally may lose momentum if prices reach this level.
While bitcoin’s {{BTC}} continued price rise exudes an aura of invincibility, one force threatens to slow its rise above $90,000, potentially keeping the cryptocurrency above the mentioned price level.
The power belongs to market makers or dealers – entities responsible for providing liquidity to the order book, taking advantage of the bid-ask spread and continually striving to maintain market-neutral exposure.
Those entering the bitcoin options market on the crypto exchange Deribit currently appear to have significant positive ‘gamma’ exposure at the $90,000 and $100,000 strike options. Simply put, this means that traders/investors have sold options at these levels, leaving market makers, who are always on the other side, with a large portion of the long positions.
When market makers have long or positive gamma exposure, they tend to buy the underlying asset when its price falls and sell when it rises to keep their net exposure direction neutral. This hedging acts as a volatility dampener and limits price fluctuations.
In the case of bitcoin, this means that market makers will likely trade against the market direction between $90,000 and $100,000, keeping prices in a range, assuming other things remain equal.
“We see that many traders own shares [buying] optional up to the $90K handle for November 29 and December 27. But the $90,000 to $100,000 range has been sold to dealers,” said Greg Magadini, director of derivatives at Amberdata.
“If the market gets there, we could see prices struggle unless sentiment turns further bullish,” Magadini added.
Options are derivative contracts that give the buyer the right, but not the obligation, to buy or sell the underlying asset at a later date at a predetermined price. A call gives the right to buy and the put option gives the right to sell.
Gamma is one of the critical options ‘Greeks’, which measures how much the price of an option accelerates when the price of the underlying asset moves. Net gamma exposure determines how aggressively an options market maker must buy or sell the underlying asset to keep the overall exposure neutral.
Bitcoin is currently changing hands just above $82,000, just 8% away from the crucial $90,000 level, according to CoinDesk data.
