Crypto Options Market Makers May Fuel Bitcoin Price Surge Above $36,000
Crypto News – Bitcoin (BTC) stands to experience swift price surges once it surpasses the $36,000 threshold, as indicated by the recent actions of options market makers.
Options are financial derivative contracts that grant the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on a future date. A call option represents a bullish position, allowing the holder to buy, while a put option provides the right to sell.
In recent weeks, there has been an increased demand for call options with higher strike prices, coinciding with Bitcoin’s impressive 27% rally over the past month. This surge has resulted in market makers accumulating a substantial net short gamma exposure beyond the $36,000 level, as reported by data from Amberdata and Galaxy Digital. Options gamma is a measure of how the delta (sensitivity of options prices to Bitcoin’s price changes) changes in response to a $1 shift in Bitcoin’s price.
When market makers or dealers find themselves net short gamma, they are compelled to purchase the underlying asset in the spot market as its value rises, in order to maintain an overall delta or market-neutral exposure. This hedging activity often propels the market upwards, a phenomenon known as a “gamma squeeze,” and likely played a role in Bitcoin’s rapid ascent from $30,000 to $35,000.
Alex Thorn, the Head of Firmwide Research at Galaxy Digital, explains, “If the BTCUSD price climbs towards the $35,750-$36,000 range, options dealers will need to acquire $20 million worth of spot Bitcoin for every 1% increase, potentially triggering significant price movements.”
Dealers or market makers are entities responsible for facilitating order book liquidity and typically stand in opposition to investors’ trades. They earn their profits through the bid-ask spread and always aim to maintain a neutral portfolio with regard to market direction.
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