Bitcoins price declines ahead of Friday’s quarterly options settlement have once again cast doubt on the popular “max pain theory.”
The maximum pain level for this expiration is $72,000, significantly above current spot prices of around $61,700. On Friday at At 8:00 a.m. ET, $10 billion worth of options expire on Deribit, the world’s largest crypto options exchange.
Max pain, as the name suggests, refers to the price level at which option buyers—those who bought call and put contracts to hedge against volatility—would lose the most money at expiration. In that scenario, option buyers suffer maximum losses, while their counterparties who sold options (also known as writers) stand to benefit.
The theory suggests that, before expiration, these option writers are actively trying to push the spot price towards the maximum pain level, effectively locking bitcoin there. Crypto social media has long embraced the idea, especially after BTC seemed to gravitate towards the maximum pain point ahead of more monthly and quarterly settlements in 2020-2021. This pattern, although partly coincidental and driven by other market forces, helped strengthen the belief in the theory.
