Over the past day, cryptocurrency heavies Bitcoin (BTC) and Ether (ETH) have experienced modest price increases, yet current values sit notably below what some term “maximum pain” levels for buyers of August options contracts. The upcoming Friday brings a significant moment: Deribit, the top name in global crypto options by volume and interest, will settle BTC contracts worth $1.9 billion and ETH contracts valued at $893 million. The current maximum distress for BTC and ETH settlements hovers at $28,000 and $1,800, respectively.
Delving into market theory, one might note a common thread – sellers of call and put options often attempt to drive the underlying asset’s spot price towards the maximum pain degree, this inflicts the highest loss on their counterparts – the option buyers. This frequently occurs via buying or selling the cryptocurrency in spot or futures markets. With other factors holding constant, BTC and ETH could be trading near these points of discomfort in the coming 24 hours, a situation which will become obsolete post-expiry.
Option contracts are significant, equating to one BTC or ETH on Deribit, which commands nearly 90% of international crypto options action. As we head for the expiry, Lin Chen, Derbit’s Asia Business Development personnel, intones that BTC and ETH put option purchasers appear to be the clear victors in this struggle. Numerous put options are “in-the-money,” i.e., a situation where the strike price exceeds the current market rate for the asset. This enables the ITM put holder to sell the asset for greater than the present market rate.
Last week’s 8.3% dip has consigned a significant portion of ether call options to expire out-of-the-money. A comparable scenario is evident in Bitcoin’s open interest distribution, with the lead cryptocurrency’s 10% plunge last week – its steepest fall since FTX’s November collapse.
So, we bear witness to the cyclical nature of the crypto market, which, like any financial sphere, is interspersed with periods of gain and despair. Such fluctuations reflect the dynamic vitality of the market, validated by its increasing interest, and, in the grand scheme, may constitute small troughs in the journey to loftier peaks.