• October's expiry is due Friday at 08:00 UTC, with $4.2 billion in options expiry for bitcoin and over $1 billion for ether.

• Bitcoin has a higher put/call ratio than ether, which indicates a more bullish sentiment as we approach options expiry.

The crypto market may be set up for some short-term volatility this week as monthly bitcoin {{BTC}} and ether {{ETH}} options contracts are set to expire on Friday.

BTC and ETH options contracts worth $4.2 billion and $1 billion, respectively, will expire on Deribit at 08:00 UTC. An option allows the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price within a certain time period.

According to Deribit data, what’s worth noting is that BTC options worth over $682 million, equating to 16.3% of the tally of $4.2 billion are set to expire “in-the-money,” of which most are calls. A call with strike price below the going market rate is said to be ITM while ITM puts are those with strikes above the spot price.

The dynamic could breed market volatility as holders of in-profit ITM options look to close their bets or move positions in the next expiry. The last quarterly expiry dated end of September had a similar distribution of open interest.

Deribit data shows that the bitcoin put-to-call open interest ratio stands at 0.62 ahead of the expiry, indicating a relatively bullish sentiment. In other words, for every 100 call options active, 62 put options are open. The bias for calls is not surprising, considering BTC recently neared $70,000 for the first time since July.

Max pain at $64K

BTC’s max pain level is $64,000, where most options - would - expire worthless, causing the most loss to option buyers and maximizing profit for the options writers.

At press time, BTC traded near $67,000, well above the max pain level while ether changed hands at around the max pain level of $2,600. So believers of the max pain theory might say bitcoin has room to fall ahead of the expiry while ether’s downside is capped.

Max pain theory states that the pre-expiry activities of traders with short options exposure often drives the underlying asset closer to its max pain level. However, the crypto community is divided on the max pain effect, with some saying the options market is still quite small to impact the spot price.

The options market will continue to grow

Crypto options market has grown multi-fold in the past four years, with contracts worth billions of dollars expiring every month and quarter. That said, its still relatively small compared to the spot market. According to Glassnode, as of Friday's data, the spot volume was approximately $8.2 billion, while options volume was roughly $1.8 billion. In addition, BTC's open interest of $4.2 billion due to expire this Friday is less than 1% of BTC's market cap of $1.36 trillion.

That said, it could get bigger and move beyond BTC and into crypto-linked products in future as more institutions participate in the market. On Friday, the U.S. Securities and Exchange Commission (SEC) approved options tied to spot bitcoin ETFs. This comes after the approval of trading options of BlackRock's iShares Bitcoin Trust (IBIT).

Jeff Park, head of alpha strategies at Bitwise Invest, called the approval "game-changing" and believes exchanges with central guarantors, which LedgerX and Deribit don't provide, are necessary. Park goes on further to say that he believes the options will start available to start trading in Q1 2025.