Today, March 31, the quarterly expiration of cryptocurrency options will take place. According to the company Greeks Live, The total number of BTC options is 141,000 for a total value of $4.1 billion and 1.74 million Ethereum options for $3.1 billion. This means that the holders of these options must decide whether to fulfill their contracts or not, depending on the current price of the underlying asset.
Options are financial instruments that give their holders the right to buy or sell an underlying asset (e.g., cryptocurrency) at a specific price at a certain point in the future. They are often used to protect against potential losses or for speculative purposes.
The max pain price is the price level of the underlying asset at which option holders will experience the greatest pain if the market price of the underlying asset falls below that level. For example, if the max pain price for bitcoin is $24,000, then option holders will experience the greatest pain if the price of bitcoin falls below this level.
How do cryptocurrency options work? Suppose you have an option to buy $50,000 worth of bitcoins that expires today. If the price of bitcoin is currently $60,000, you can exercise your option by buying bitcoins at $50,000 and immediately selling them on the market at a higher price, making a profit. If the price of bitcoin is below $50,000, you can simply refuse to exercise the option, losing only the value of the option itself.
While cryptocurrency options can be a profitable tool to protect against potential losses or for speculative purposes, they can also be very risky. Option holders can lose their entire investment if the market price of the underlying asset does not meet their forecast.