Traders said market makers stand exposed to a continued bitcoin price rally in the lead up to Friday's options expiry and may hedge their risk through the spot market, adding to upward pressures on prices. reports godbole17.
Bitcoin could see wild price swings heading into the weekend as options contracts worth billions of dollars tied to the cryptocurrency are set to expire on Friday.
Options are derivatives contracts that give the purchaser the right, but not the obligation, to buy or sell the underlying asset at a predetermined price on or before a specific date. Call options give the right to buy; puts the right to sell. Investors use options to hedge their positions in the spot or futures market against adverse price movements and speculate on future trends in valuations and volatility.
If bitcoin were to extend gains ahead of the weekend, market makers will be forced to hedge their short gamma exposure by purchasing the cryptocurrency in the spot or futures market. That, in turn, could bring more upside volatility.
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