They call it “max pain” in the bitcoin options market: How to make one’s 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. It’s 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. That’s 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.
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