Bitcoin (BTC) prices surged Friday as the market appeared largely unfazed by the expiration of more than $4 billion of options earlier in the day. Historical price patterns suggest the largest cryptocurrency may be due for further gains over the coming weeks.
Since October the settlement of the monthly options contracts has proven to be a catalyst for bullish short-term moves. In the 10 days following the past six monthly expiries, the cryptocurrency has charted gains ranging from 7% to 35%.
Last month, prices pulled back to $50,000 in the week leading up to the March 26 expiry, only to reverse course in the following days and reach new record highs above $64,000 on April 14. A similar dynamic unfolded before and after the February and January expiries.
One possible explanation for the month-end pullbacks was that the “max pain point” – the strike price at which the most open options contracts expire worthless – was so far below the spot price. Such a setup raises the risk that some traders might try to push the market down so that the options would be in the money at expiration.
For instance, the max pain point for the March 26 expiry was $44,000, and the cryptocurrency traded near $60,000 a week before expiry. That likely prompted options sellers – typically institutions – to create bearish pressure in the spot/futures market and push prices closer to the max pain point in a bid to inflict maximum loss on options buyers.
This time around, the max pain point for the April expiry, which took place at 08:00 UTC Friday, was $54,000, according to Deribit, the dominant exchange for trading cryptocurrency options.
Prices fell from $60,000 to $48,000 in the eight days to April 25. However, the cryptocurrency bounced back over the next few days. By the time of Friday’s expiration, the price was right around the max pain point of $54,000. Most options expired worthless or out of the money.