Over $5 billion in bitcoin options is set to expire on Deribit this Friday, with a max pain price of $98,000, significantly above the current market price. Approximately 78% of these contracts are out-of-the-money, resulting in considerable unrealized losses for traders. This situation may incentivize options sellers to raise prices toward the max pain level, leading to increased market volatility.

This Friday at 08:00 UTC, over $5 billion worth of bitcoin options on Deribit is set to expire. The max pain price for Bitcoin stands at $98,000, considerably higher than the current spot price. As a result, approximately 78% of the $5 billion in options contracts will expire out-of-the-money (OTM). This situation leaves traders facing significant unrealized losses due to the recent decline in bitcoin’s price, which has slipped below $90,000.

Bitcoin’s recent price volatility has caused the Deribit Volatility Index (DVOL) to rise sharply before again retreating below 50. This fluctuation indicates a heightened sense of uncertainty within the market. The bearish trend has left almost all call options in OTM territory, while the remaining $1.1 billion worth of options are in-the-money (ITM), predominantly composed of put options, which hold potential value as their strike prices exceed the current spot price.

The considerably higher max pain price at $98,000 may stimulate institutional options sellers to drive up bitcoin’s price towards this level as the expiry date approaches. According to PowerTrade, “With the end of the month approaching, bitcoin options traders should take note. Max Pain for Feb. 28 sits at $98,000, with a massive $5 billion notional value. This means the highest open interest is clustered here, incentivizing market makers to keep bitcoin close to this price.”

The initiative to push prices closer to the max pain level suggests that volatility may increase leading up to the expiration date. The impact of this phenomenon, referred to as the max pain theory, remains to be seen as traders navigate this critical juncture in the options market.

In summary, the impending expiration of $5 billion in bitcoin options may significantly influence market dynamics, potentially driving the price closer to the $98,000 max pain level. This scenario reflects the challenges traders face due to unrealized losses from OTM options as well as the urgency among options sellers to adjust prices accordingly. Observers will monitor the developments closely as the expiration date nears, evaluating the application of the max pain theory in this context.

Original Source: www.coindesk.com

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