Today is the last Friday of the month, which means a significant volume of options is once again expiring on the Deribit exchange. This time, contracts worth more than $10.5 billion are expiring, and following overnight developments, the price of Bitcoin has dropped exactly to the Max Pain Price level.
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What Max Pain means and how positions are distributed
The Max Pain Price is the price at which the volume of in-the-money (ITM) options is balanced on both sides of the market. Bullish (call) and bearish (put) options therefore expire with roughly the same profit, and their potential exercise should have only a minimal impact on the markets.
Of the total volume of $10.5 billion, only $1.48 billion (14%) is in profit. Most bulls bet on growth above $90,000, with the largest concentration of contracts at the $95,000 level and a significant volume also targeting $100,000. The Put/Call ratio reached 0.52, which means bullish options outnumber bearish ones almost two to one. As recently as yesterday afternoon, the price of Bitcoin was hovering around $82,000, but an overnight attack on the Binance exchange sent cryptocurrency markets sharply lower.
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What impact will today’s expiration have on the market?
Deribit is the largest options platform for cryptocurrency derivatives, and today’s volume represents roughly a third of all open contracts. Most of them will expire worthless, so we can expect positions to be rolled into the next period. The question remains whether that will be until the end of November (with a volume of $3.5 billion and a Max Pain Price of $81,000) or until the end of the year. Personally, I lean toward year-end, when not only monthly but also quarterly and annual options expire, with a current volume of $10.6 billion and a Max Pain Price of $75,000.
It is also possible that traders will wait for the results of the elections in the USA, which take place on November 3 and will undoubtedly bring volatility and a new direction for the market. The expiration itself will take place today at 9:00 our time, so the market reaction will become clear soon – and, above all, whether we will be able to distinguish it from the response to the overnight security incident at Binance.
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Sources:
- Deribit exchange – statistics and overview of Bitcoin options expiration: deribit.com
- Binance exchange – official statement and platform status: binance.com
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