Many people believe that the price of #Bitcoin moves solely based on #noticias , social media, or market rumors. However, there is one event that often moves the price more than any news: the expiration of options.
Understanding this can completely change the way you see the market.
What are options?
Options are financial contracts that give investors the right to buy or sell Bitcoin at a specific price on a specific date.
There are two main types:
Call: bet that the price will rise.
Put: bet that the price will fall.
These contracts have an expiration date, and when that date arrives, the market tends to experience significant movements.
Why does options expiration move the market?
When options are about to expire:
Thousands of contracts are closed.
Large investors adjust their positions.
Market makers move the price to reduce losses.
Volatility increases.
That’s why many times we see that the market:
Moves slowly or laterally before expiration.
It has sharp movements close to expiration.
After expiration, a strong movement occurs.
This makes the market seem manipulated, but in reality, many times it is just adjustments of financial derivatives positions.
The concept of 'Max Pain'
In the options market, there is a very important concept called Max Pain.
-Max Pain is the price where:
-The largest number of options lose money.
-Options sellers earn more.
The price often tends to approach that level before expiration.
That’s why, on some occasions, the price seems to go exactly to the level where most people lose money.
The financial market does not always move because of news. Many times it moves because of:
Liquidity
Leverage
Derivatives
Contract expirations
Options expiration is one of the most important events in the cryptocurrency market, and understanding it can help you to:
Avoid trading with high leverage on those days.
Understand volatility.
Better understand market movements.
In financial markets, many times the price does not move because of what people think, but because of where the money is.
