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What is the “maximum pain point”?
According to Deribit’s data, Bitcoin and Ethereum will experience the largest open interest in options contracts on December 29th. The nominal value of open interest in Bitcoin options is as high as $7.5 billion, with a put-call ratio of 0.66 and a maximum pain point of $33,000.
On the other hand, the nominal value of open interest in Ethereum options is approximately $3.35 billion, with a put-call 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, thereby reducing their own losses.
However, it should be noted that the maximum pain point theory is subject to certain controversies in both academia and practical applications, and not all market participants endorse or use this theory.
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