The crypto market is gearing up for a massive structural reset on Friday, with billions of dollars worth of bitcoin. and ether options must expire on Deribit.
This colossal “Boxing Day” event, named after the holiday celebrated in many countries on December 26, will see $23.6 billion worth of Bitcoin options and $3.8 billion worth of Ether options expire, meaning they will cease trading and be settled. These figures reflect the dollar value of active options contracts at the time of publication, with each contract representing 1 BTC or 1 ETH.
According to Deribit, the expiration, which affects more than 50% of the total open interest on the centralized exchange, is characterized by bullish positioning.
“The maximum pain level is near $96,000, while a put-call ratio of 0.38 reflects call-biased positioning and a bullish bias,” Sidrah Fariq, Deribit’s global head of retail and business development, said in an interview on Telegram. The maximum price is the level where option buyers stand to lose the most money and option sellers, usually large institutions and market makers, make the most profit.
Options are derivative contracts that give the buyer the right, but not the obligation, to buy or sell the underlying asset at a predetermined price at a future date. A call option buyer is implicitly bullish on the market, while a put buyer is bearish, seeking to hedge or profit from a potential decline in the price of the underlying asset.
The “maximum pain” magnet
“Max pain” is one of the most watched numbers as options approach expiration. Because of the profit/loss implications for both sides of the contract, some observers suggest this creates a tug of war between professional traders adjusting their hedges, often moving the spot price toward the maximum pain level as time passes.
Essentially, proponents of the theory suggest that this implies that bitcoin could reach $96,000 and ether as high as $3,100 at expiration.
Nonetheless, the maximum pain hypothesis remains a controversial and debated concept in the broader crypto derivatives landscape, with many market participants suggesting that it has little effect on prices.
Bullish Bias Meets Holiday Lull
As for the put-call ratio, it indicates that for every 100 call options in play, there are only 38 puts.
This indicates how bullish traders have been throughout the year, seeking bullish exposure via call options. At the time of writing, most open interest was focused on calls with strike prices ranging from $100,000 to $116,000. Meanwhile, the $85,000 put was the most popular bearish bet.
Large expirations like this usually lead to volatility as traders rush to close trades or roll them over, that is, move to new expirations. According to Fariq, some put options with a strike price of $70,000 to $85,000 are rolling over until they expire in January.
“The decision to let December open interest expire or extend will determine whether the downside risk is due to year-end risk or a structural risk reset,” Fariq said.
Still, the impending settlement could be more orderly, she added.
“The huge expiration comes on Boxing Day. Volatility remains contained (Deribit’s BTC DVOL is around 45), and while overall activity remains high and upside exposure dominates, thinned liquidity over the holiday season and lingering macroeconomic uncertainty temper directional conviction,” Fariq noted.
DVOL is the index representing the annualized volatility in implied or expected Bitcoin prices over 30 days. This options-based metric is back to 45%, down from 63% on Nov. 21, when BTC fell to nearly $80,000 on some exchanges.
This decline indicates that the market’s sense of panic is fading and traders are not necessarily seeing outsized volatility due to expiration.
