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Expiration date of nearby options
What is the “maximum pain point”?
According to data from Deribit, Bitcoin and Ethereum will experience the largest volume of open options contracts expiring on December 29th. Among them, the notional value of open Bitcoin options contracts is as high as $7.5 billion, with a long-to-short ratio of 0.66, and a maximum pain point of $33,000.
On the other hand, the notional value of open Ethereum options contracts is approximately $3.35 billion, with a long-to-short ratio of 0.67, and a maximum pain point of $1,900.
The “maximum pain point” can be seen as an indicator of market sentiment. In theory, when the price of the underlying asset approaches the maximum pain point, option holders in the market will experience the greatest losses. Some traders believe that as the options expiration date approaches, option market makers or large investors (i.e., counterparties to most traders) may attempt to manipulate the price of the underlying asset to approach the maximum pain point in order to reduce their own losses.
However, it should be noted that the maximum pain point theory is controversial in both academic and practical applications, and not all market participants agree with or use this theory.
