Bitcoin (BTC) and Ether (ETH) prices are below the “Maximum Pain” level as the August expiration date approaches

While bitcoin (BTC) and ether (ETH) have posted modest gains over the past 24 hours, prices remain well below levels likely to cause “maximum pain” for buyers of options contracts expiring in August.

On Friday, Deribit, the world’s leading crypto options exchange by open interest and volume, will settle 72,000 BTC August options contracts worth $1.9 billion and 535,000 ETH options contracts worth $893 million.

The maximum pain levels for BTC and ETH settlements are currently $28,000 and $1,800.

The popular theory is that writers or sellers of call options and put options often try to force the spot price of the underlying asset towards the maximum pain level in order to get the most exposure to their counterparty, the option buyers. This is done by buying/selling the cryptocurrency on the spot/futures markets.

Assuming other factors hold constant, BTC and ETH could trade close to their respective maximum pain points over the next 24 hours. The maximum pain points expire after expiration. Deribit settles options on Friday at 08:00 UTC. At Deribit, one option contract represents 1 BTC and 1 ETH. The exchange controls nearly 90% of global crypto options activity.

“Buyers of BTC and ETH put options ahead of expiration are clear winners,” Lin Chen, Deribit’s Asia business development officer, told CoinDesk. “Many put options are in the money.”

An in-the-money put is a put with a strike price higher than the market price of the underlying asset. This means that the ITM put holder can sell the underlying asset at a price higher than the current market price.

A put option gives the holder the right, but not the obligation, to sell the underlying asset at a predetermined price at a future date. One phone call to purchase.

Due to the 8.3% drop over the last week, most Ether call options will expire out of the money. Bitcoin’s open interest distribution paints a similar picture, as shown in the feature image. The leading cryptocurrency by market value plunged over 10% last week, its biggest drop since FTX collapsed in November.