Market inertia around Bitcoin options expiration: Why volatility often spikes significantly after the "iron cage" loosens

BlockBeats News, December 26th report — Today at 16:00 (UTC+8), Bitcoin experienced the largest annual settlement in history, with a nominal value of up to $2.37 billion. Behind this grand expiration event lies a pattern often overlooked by market participants: the volatility around expiration tends to follow a similar script.

From Suppression to Explosion: The “Iron Cage Effect” of Options Expiration

The past several delivery cycles have painted a clear picture — each time before a large options expiration, the market falls into a strange calm. During the year-end settlement in 2023, Bitcoin was firmly stuck in a narrow range of $42,000-$43,000. Despite ample liquidity, it could not break through. This phenomenon is no coincidence but is caused by the gamma hedging mechanism exerting a “price pinning effect.”

When a large number of market makers frequently adjust their spot positions to hedge options exposure, they inadvertently create an invisible wall. As expiration approaches, the pressure of this wall is at its peak. However, once settlement is completed, the constraint immediately dissolves. Within the following week, Bitcoin rapidly climbed to $48,000, marking a one-sided rally to start the new year.

Repeating Pattern: Validation in 2024

This logic has been repeatedly validated in three quarterly deliveries in 2024. In March, driven by expectations of Bitcoin halving, $65,000 became a pain point. Despite optimistic market sentiment, the price remained highly volatile within the $60,000-$70,000 range. After expiration, gamma hedging pressure eased, and BTC surged past $70,000, hitting new highs and providing a strong start for the halving rally.

The situation in June was slightly different — the $60,000 pain point before settlement added to the market’s broad adjustment expectations. After expiration, Bitcoin initially fell then stabilized, but lacked strong upward momentum, reflecting the divided market sentiment at that time.

In September, driven by changes in Federal Reserve policies, the market fluctuated between $55,000 and $65,000 around the $62,000 pain point zone. Once settlement was completed, the easing of rate cut expectations pushed Bitcoin toward $70,000, recreating the “speed-up after the cage opens” phenomenon.

Year-End Closure and New Year’s Starting Point

The major annual delivery on December 27th is the most anticipated moment of the past year. By then, Bitcoin had already risen to the $70,000-$80,000 range, with the pain point set at $75,000. Liquidity was scarce during the holiday period, but long call options positions were abundant, providing enough support. After expiration, the Christmas window saw market euphoria, with Bitcoin instantly breaking through $80,000, ending the year with strong momentum.

Outlook for 2025: A Preview of Volatility

In the quarterly deliveries of 2025, this pattern continues to play out. Before the March delivery, Bitcoin was highly active in the $80,000-$90,000 range, with $85,000 as a pain point. Market sentiment was optimistic but accompanied by short-term correction risks. After settlement, volatility surged, and Bitcoin broke upward, aiming for $100,000.

The $102,000 pain point in June reflected that the market had reached a new high. Despite mixed sentiment, the upward trend remained intact, and overall volatility was controlled.

By late August, the $116,000 pain point showed further expansion — in the environment of holiday liquidity drought, the gamma trap effect was most evident. Bitcoin briefly dipped below the pain point then quickly rebounded, once again confirming the “speed-up after expiration” pattern.

The Significance of Today

Today’s $2.36 billion annual settlement has a pain point locked at $96,000. The liquidity vacuum during the Christmas holiday, combined with precious metals rallying, kept Bitcoin in the $85,000-$90,000 range. But experience shows that once the dust settles from settlement, the “iron cage” dissipates, and the market often accelerates past previous resistance levels. Most analysts expect that $90,000 will no longer be a barrier, and $100,000 or even a new year rally could immediately follow.

This recurring pattern has been validated for over a year — each large options expiration is like a deep breath followed by an acceleration. How to find trading opportunities within the “iron cage” and react quickly when it loosens has become a must-know skill for savvy traders.