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Nearby Options Expiry
What is the “Max Pain”?
According to data from Deribit, Bitcoin and Ethereum will see the largest open interest options expiry delivery on December 29th. The open interest nominal value of Bitcoin options is as high as $7.5 billion, with a put/call ratio of 0.66, and a max pain of $33,000.
On the other hand, the open interest nominal value of Ethereum options is around $3.35 billion, with a put/call ratio of 0.67, and a max pain of $1,900.
The “max pain” can be seen as an indicator of market psychology. In theory, when the price of the underlying asset approaches the max pain point, option holders in the market will experience the greatest losses. Some traders believe that as options expiry approaches, option market makers or large investors (the counterparties to most traders) may attempt to manipulate the price of the underlying asset to approach the max pain point, thereby reducing their own losses.
However, it is important to note that the max pain theory is subject to some controversy in both academic and practical applications, and not all market participants agree with or use this theory.