Key facts
- Bitcoin's price has dropped below $62,000 ahead of a $10 billion options expiry.
- The 'max pain' level for the upcoming expiry is $72,000, far exceeding current market prices.
- The 'max pain' theory suggests option writers push prices toward a level of maximum loss for buyers.
- Recent options expiries have not demonstrated the expected price-pinning effect.
- The June Deribit expiry is anticipated to be a significant liquidity event, potentially increasing volatility.
Bitcoin's price has fallen to below $62,000 in the days leading up to a significant $10 billion options expiry on Deribit, challenging the widely discussed 'max pain' theory. This theory posits that option writers, aiming to maximize losses for option buyers, will attempt to drive the underlying asset's price towards a specific 'max pain' level by the expiry date.
The current max pain level for Friday's quarterly settlement is set at $72,000, a figure substantially higher than Bitcoin's spot price, which hovers around $61,700. This discrepancy, coupled with a recent price drop from approximately $67,000 to under $60,000, undermines the narrative that prices are mechanically pinned by these expiries.
Options experts, such as Tony Stewart of Pelion Capital, have long expressed skepticism regarding the max pain theory's efficacy in crypto markets. Jasper De Maere, an OTC trader at Wintermute, noted that recent expiries have not shown the expected "pinning effect." Despite these doubts, the sheer volume of contracts expiring or rolling over into future dates makes the June Deribit expiry a notable liquidity event that could potentially fuel market volatility.