Bitcoin The price drop ahead of Friday’s quarterly options settlement has once again cast doubt on the popular “maximum pain theory.”
The maximum pain level for this expiration stands at $72,000, significantly above current spot prices of around $61,700. On Friday at 8:00 a.m. ET, $10 billion worth of options will expire on Deribit, the world’s largest crypto options exchange.
Maximum pain, as the name suggests, refers to the price level at which options buyers – those who have purchased call and put contracts to protect against volatility – would lose the most money at expiration. In this scenario, option buyers suffer maximum losses, while their counterparties who sold the options (also called writers) will benefit.
The theory suggests that before expiration, these options writers actively attempt to push the spot price towards the maximum pain level, thereby locking Bitcoin there. Crypto social media has long embraced the idea, especially after BTC appeared to gravitate towards the maximum pain point ahead of several monthly and quarterly settlements in 2020-2021. This trend, while partly coincidental and driven by other market forces, has helped solidify belief in the theory.
