Max Pain

Very rarely is max pain to the upside. Sometimes however, it can be. Today's piece explores the pain being felt by many call option sellers, who are watching a rising Bitcoin price moving against them

G’day Folks,

Last week in Hanging On By a Thread, we established the decision box shown in the price chart below. The upper bound was the Short-Term Holder cost basis at $113k, and the lower bound was at $100k, aligned with the long-term average of MVRV.

The spot price is now trading at $114.8k, which is above the STH cost basis at the time of writing, and a pretty nice way to start my Monday morning as a HODLer.

Chart Link

Check the Analyst has been openly cautious in recent weeks (see On The Cusp), based on a combination of the heavy sell-side pressure being exerted, and how ‘Top Heavy’ the market would be if price dipped below the $95k to $100k zone. No matter which way we sliced it, that was a key line in the sand, as it would have put a majority of the Bitcoin wealth underwater.

Check the HODLer then approached the problem with Fresh Eyes, and illustrated that whilst the bearish setup has legitimate teeth…we simply were not there yet. The onus was still on the bears, and market structure had more in common with a bull market dip than a true bear. The market was absorbing the heavy sell-side pressure like a champion, and an increasingly large number of people were selling IBIT call options above the $126k ATH.

Generally speaking, I am of the view that ‘max pain’ is very rarely to the upside. Whenever someone claims ‘max pain is to the upside’, they are usually very long the asset, and are trying to convince others to buy, and hoping the price will stop going down.

But sometimes, on very rare occasions, max pain can actually be to the upside. At times, it may also be the funniest outcome.

Whist HODLers may enjoy a good Monday morning rally…for options traders who sold their upside…not so much.

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