gex-max-pain

GEX and Max Pain (Deribit)

Two heuristics popular in crypto options:

• Max Pain: the strike at which the most options expire worthless (sum of ITM put + call OI is minimized). Folk theory: spot is "pulled" toward this strike near expiry.
• GEX: sum of dealer gamma exposure across the chain. Positive GEX = dealers are long gamma and will dampen vol via hedging flows. Negative GEX = dealers short gamma, hedging amplifies moves.

Both are positioning indicators, not forecasts. Don't treat them as price targets.

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Step 1: Pull the Chain at Target Expiry

Use deribit-options-chain to get the full chain. Filter to a single expiry (default: nearest Friday).

Required columns per strike + side: strike, option_type (C/P), open_interest (contracts), mark_iv, gamma (from Deribit ticker, coin-units).

If gamma isn't in the chain summary, compute it via inverse-options-pricing using mark_iv and underlying_price. Don't silently skip the conversion — record which gammas came from where.

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Step 2: Max Pain Calculation

For each candidate spot S_test (typically every $500 strike for BTC, every $25 for ETH):

import pandas as pd
def max_pain(chain_at_expiry):
    """chain has columns: strike, option_type ('C'/'P'), open_interest"""
    strikes = sorted(chain_at_expiry['strike'].unique())
    losses = []
    for S in strikes:
        # Holder P&L at expiry (ignoring premium — pure intrinsic)
        c_oi = chain_at_expiry[chain_at_expiry['option_type'] == 'C']
        p_oi = chain_at_expiry[chain_at_expiry['option_type'] == 'P']
        call_loss = ((S - c_oi['strike']).clip(lower=0) * c_oi['open_interest']).sum()
        put_loss  = ((p_oi['strike'] - S).clip(lower=0) * p_oi['open_interest']).sum()
        losses.append({'spot': S, 'total_holder_payoff': call_loss + put_loss})
    df = pd.DataFrame(losses)
    return df.loc[df['total_holder_payoff'].idxmin(), 'spot']

Report the max-pain strike AND a chart of the holder-payoff curve so the user sees how flat/peaked it is.

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Step 3: GEX Calculation

Assumption: dealers are long calls and short puts on net (the canonical dealer positioning in equity index options). Crypto often inverts this — retail buys upside calls heavily, so dealers are net SHORT calls in BTC. Verify with order-flow data if possible, but for a first cut:

def gex(chain_at_expiry, spot, multiplier=100_000):
    """Returns GEX in USD per 1% spot move squared.
       multiplier scales gamma_per_share to per-position-USD."""
    # Convention: + GEX = dealer long gamma (vol-suppressing)
    # Assume dealers are short calls and long puts → flip signs
    c = chain_at_expiry[chain_at_expiry['option_type'] == 'C']
    p = chain_at_expiry[chain_at_expiry['option_type'] == 'P']
    # gamma_usd ≈ gamma_coin * S (rough — see inverse-options-pricing)
    g_call = (c['gamma_usd'] * c['open_interest']).sum()
    g_put  = (p['gamma_usd'] * p['open_interest']).sum()
    # short calls = dealer short gamma there; long puts = dealer long gamma there
    gex_total = (-g_call + g_put) * spot * multiplier / 100
    return gex_total

Critical caveat: dealer positioning is unknowable without flow data. The "dealers short calls in crypto" assumption is a heuristic — calibrate sign by checking actual flow if SpotGamma/Genesis Vol/Greeks.live data is available. Without flow data, report GEX magnitude but be explicit that the sign is assumed.

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Step 4: Gamma Profile by Strike

Plot net gamma exposure per strike. The largest spikes are the "gamma walls" — strikes where dealer hedging is most active.

def gamma_by_strike(chain_at_expiry, spot):
    g = chain_at_expiry.copy()
    g['signed_gamma'] = (g.apply(lambda r: r['gamma_usd'] * r['open_interest']
                                  * (-1 if r['option_type']=='C' else 1), axis=1))
    return g.groupby('strike')['signed_gamma'].sum().reset_index()

Render as a horizontal bar chart with strike on y-axis. Annotate the max-pain strike and current spot.

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Step 5: Interpret

Pattern	Read
Max pain near spot, low OI	Weak magnet — don't expect pinning
Max pain near spot, high OI	Plausible magnet effect into expiry
Spot far from max pain	Either dealers will hedge into max pain (theory) OR price has run too far (more likely in trend regimes)
Large positive GEX above spot	Resistance — dealers sell into rallies
Large negative GEX below spot	Acceleration zone — dealers sell into selloffs (gamma squeeze down)
0DTE expiry, high OI	Strong pinning candidate at the nearest big-OI strike

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Step 6: Respond to User

1. Expiry chosen + DTE.
2. Max-pain strike + holder-payoff chart.
3. Current GEX magnitude (with sign caveat).
4. Top 3 gamma walls (by absolute exposure).
5. Spot's position relative to walls.
6. One-line interpretation with appropriate humility ("max pain is a folk indicator — useful in low-vol regimes, broken during trends").

Hand off to:

• options-payoff if user wants to position around a wall
• delta-hedging for actively managing exposure through expiry
• dvol-index for vol regime context

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What This Skill Won't Do

• Predict tomorrow's price. GEX/max pain are positioning maps, not forecasts.
• Pretend dealer positioning is known. Without flow data, signs are estimated.
• Run on illiquid expiries — if total OI across the expiry < 200 contracts, stop and tell the user the data is too thin to mean anything.