Contracts on bitcoin will expire today. Many of these options expected that bitcoin would have a value of 60 thousand dollars (57 thousand euros) today. This is far too optimistic in hindsight. These options could give the bitcoin price a big blow, but strangely enough in the run-up to the expiry of these contracts, the price has actually risen.
What is a bitcoin option contract anyway?
You’ve probably seen it before, but what exactly is a bitcoin option contract? The buyer of a bitcoin option contract buys the right, not the obligation, to buy (call option) or sell (put option) bitcoin at a predetermined price.
A call option is a bet on the price to rise and a put option is the opposite. For example, do you feel that bitcoin could rise in the coming period, but you won’t have the money to buy it for a few weeks? Then a call option can be a smart move. You can then stipulate that in a few weeks you can buy bitcoin at today’s price.
If the price is 60,000 dollars per bitcoin in 4 weeks time, you can still buy bitcoin at today’s price value. Of course you will pay a premium to enter into that contract. The difference between the price in 4 weeks and today’s price minus the premium is the profit you make on the option contract. So every last Friday of the month, like today, millions of such contracts are executed.
500 dollars away from maximum pain
The maximum pain price for bitcoin is 20,500 dollars, with most traders being far too bullish and betting on prices above 60,000 dollars. Maximum pain price refers to the price at which the largest number of option holders will suffer a financial loss. So at the moment the price is about 21 thousand dollars, 500 dollars more than the maximum pain price. So today, it will be an exciting day…