They call it max pain in the bitcoin options market How to make ones trading counterparty suffer the most. Although the largest cryptocurrency was changing hands Wednesday around 56,500, traders were handicapping the odds of a plunge to about 44,000 by Friday, when a record 6 billion of options contracts is set to expire.
A drop to that price level would inflict max pain on buyers of options contracts, and it might be the most profitable price point for options sellers. Its a remote risk, but not one to be discounted. The max pain theory states that the market will gravitate toward the pain point while heading into the expiry. Thats because sellers typically institutions or sophisticated traders with ample capital supply often try to push the price toward the max pain point by buying or selling the asset on spot or futures markets.
The bullish spin is that if bitcoin makes it through Friday without a major correction, a major overhang will be lifted. Max pain for the March 26 expiry is currently 44,000 on Deribit, Luuk Strijers, CCO of Deribit, the worlds largest crypto options exchange by trading volumes and open positions, told CoinDesk. That does not mean the market will move to 44,000 by the end of this week, but it does imply that after Friday this potential downward pressure no longer exists.
Max pain is calculated by adding the outstanding put and call dollar value of each inthemoney ITM strike price. An ITM call is one where the strike price is below the…