Today is January Options and Futures expiration. At 11AM EST, the BRR index (https://www.cmegroup.com/trading/cryptocurrency-indices.html) on CME will settle and that will set the price for Futures and Options for this month.
On expiration days, usually traders will look for the highest open interest in certain options strikes, as these strikes would act as magnets for the underlying price. In mature markets, one must manage their ‘pin risk’, which means if they are long or short the strike closest to the expiration price, they must decide whether to EXERCISE or ABANDON their options position. If you are short the ATM (at-the-money) strike, you must sit and wait to see if your clearing house puts the underlying to you or not. Since BTC and ETH options are a relatively new and small market, we don’t believe there will be as much influence on the open interest from these options as a more mature market would expect.
When it comes to the “gamesmanship” in unregulated markets, you may see in the final minutes of expiration some ‘manipulation’ in the spot market to push settlement either higher or lower. Coming from the energy markets and trading SAME DAY options on a regular basis, the settlement window could make or break a traders day from a PNL perspective.
Another major factor influencing settlement (which does not yet exist for Cryptocurrency markets) would be MOC or TAS orders. Market-on-close is a term from equity markets, and Trade-at-Settlement comes from commodity markets, but they are essentially the same trade. These orders allow buyers or sellers to trade large size on the last print, or settlement price of that trading day. They call this the ‘imbalance’, and if these orders are much heavier to the buy side, then you would expect the settlement or last price of the day to be a high print. If the ‘imbalance’ is to sell, then you would expect selling pressure to come at the end of the day.
Hopefully these products and order types become tradable in the near future, as more market participants will come to trade cryptocurrencies which would mean more LIQUIDITY for the asset class.
Keep your eyes peeled in the next 30 minutes because things could get interesting.