Rates Risk, Roll-Off March Options Expiry Meets Fed Verdict

The US imposed a 10% global tariff on 20 Feb, only to raise it to 15% the following day, reintroducing policy risk into an already fragile environment and pushing volatility to surge across asset classes.

At the same time, US quarterly GDP slowed to 1.4% from 4.4%, well below consensus, while core PCE came in firmer than expected, creating a challenging setting for broad risk-taking.

Bitcoin broke back below its all-time high from the previous cycle, losing a key psychological anchor before stabilizing near $60,000, a long-term confluence of technical and positioning support.

The price contraction also began to unsettle parts of the narrative. As Bitcoin pulled back and correlations with broader risk assets reasserted themselves, some market participants started questioning its core investment case. They questioned the store-of-value argument, the hedge against sovereign instability and the insulation from policy shocks.

Those principles remain foundational over longer horizons, but in the short term, price action has a way of testing conviction.

Closing the February expiry and rolling into the March 2026 first-quarter contract, stress started to express itself more clearly in the options market. Implied volatility moved higher, open interest expanded, and skew steepened, signalling a market pricing a wider range of outcomes as uncertainty picked up.

Bitcoin February stress test

The February crash shifted market perception beyond price alone, as sentiment deteriorated significantly around the bellwether of the digital-asset complex.

Put open-interest market value surged to an all-time high of $3.4bn while call open-interest market value collapsed to multi-year lows as spot sliced through major supports. This represents the premium paid for downside protection.

(Source: CoinMetrics)

A large share of that premium had been concentrated in the February expiry, with Q1 and Q2 maturities holding the remainder, highlighting that stress was front-loaded. As the contract approached settlement, roughly $7.8bn in notional expired, with max pain pinned above $70,000, a level the market ultimately failed to sustainably recover over the month.

Within the month, and particularly around the sharp selloff, open interest was effectively cut in half from early February levels. As the price dropped, the dominant out-of-the-money calls concentrated at higher strikes were scaled back aggressively. These were largely tied to structured call overwriting and yield-enhancement strategies.

As those positions lost relevance and premium decayed, call-side exposure contracted sharply, reinforcing the unwind of upside positioning across the complex. Meanwhile, puts concentrated between $80,000 and $70,000, roughly $836mn in open interest, moved into relevance as spot broke lower, accelerating repositioning flows.

Into the March expiry

By late February, the tone had clearly shifted.

The put-to-call ratio climbed from 68% to 77%, reflecting heavier defensive bias. At the same time, March open interest expanded 21.8%, signalling that risk was not being removed from the system but rolled forward on a longer horizon. Implied volatility rose, and skew steepened into the March expiry, consistent with a market pricing a wider distribution of outcomes after the break in structure.

(Source: CoinMetrics)

For months, the backdrop favoured selling out-of-the-money options. This included covered calls, cash-secured puts and structured yield products, all of which suppress tail implied volatility. When realized volatility stays low, that carry works and wings remain relatively cheap.

As uncertainty picked up, that dynamic shifted. Funds that had been short wings began reducing exposure, buying back the options they previously sold.

As price breached the support zone, protective demand pushed downside implied volatility higher over the month. The more aggressive move on the upside suggests that it was not just fresh call buying, but also the unwind of short-call carry. When structured yield supply retreats, far out-of-the-money calls can reprice sharply because the natural seller disappears. These are the participants artificially pinning implied volatility down.

In a stable, carry-driven environment, the market is comfortable selling tails for income, assuming realized volatility will remain contained. Implied tails stay cheap because income strategies dominate flows. When risk perception shifts, behaviour changes. Participants prioritize convexity over carry. Instead of harvesting premium, they pay for protection and optionality.

The surface then reflects that shift. Wings lift relative to the body, skew steepens, and the distribution widens, shifting from yield harvesting to risk management.

(Source: CoinMetrics)

The February shock marked a shift in risk perception. Rather than simply cutting exposure, participants migrated risk forward. Short-term convexity was reduced while protection was extended into longer maturities. Positioning rolled into the 27 Mar quarterly expiry, and to a lesser extent Q2, concentrating roughly $9.7bn in open-interest notional as of today.

Defensive positioning is heavily clustered in the $50,000 to $60,000 zone, with close to $1bn in puts concentrated around the March expiry. On the upside, open interest is largely parked far out of the money, from $80,000 up to $100,000, totalling roughly $1.9bn. The distribution suggests structured call overwriting and yield-enhancement repositioning flows rather than aggressive directional conviction.

March has become the focal point. Beyond technical positioning, the calendar carries weight. US regulatory developments around the CLARITY Act and broader market-structure legislation sit alongside the 18 Mar Fed decision. Policy, liquidity and regulatory visibility converge within the same window.

The market has become highly sensitive to macro headlines, and the latest tariff hat trick was a clear illustration.

Trump tariff hat trick

The tariff shock fits naturally into the same convexity-withdrawal framework, but with a clear macro catalyst layered on top. Comparing the February expiry surface in the sessions before and after the escalation, implied volatility lifted, skew steepened, and tails richened as participants recalibrated distribution risk.

On 20 Feb, the announcement of a 10% global tariff introduced an immediate growth and trade uncertainty premium. Even before any mechanical economic impact, markets had to reprice distribution risk, including slower global trade, retaliation risk, margin compression and policy escalation.

That kind of policy shock widens the range of potential outcomes, and options markets respond by lifting implied volatility. This occurs particularly on the downside, where growth-sensitive assets are most exposed.

(Source: CoinMetrics)

Escalation risk is structurally volatility-positive, and the following day's tariff increase to 15% pushed participants away from range assumptions toward tail hedging.

Therefore, defensive demand rises and investors buy puts to hedge downside macro risk, lifting downside implied volatility and steepening left skew. Protective positioning becomes more expensive because insurance is actively being sought.

Expectations around policy, regulation and liquidity are now embedded directly into the options surface. Volatility is reacting to more than just price swings. It is pricing headline risk, legislative uncertainty and central bank decisions in advance.

With positioning concentrated in the March quarterly expiry, the month stands as a potentially decisive juncture for the crypto complex.