Tuesday, August 16

Ethereum Bulls Likely to Make $ 130 Million Gains on ETH Options Despite Two-Week Drop


Ether (ETH) investors have no reason to complain after the 344% gains accumulated in 2021 through Nov. 24. Still, analysts fear that the November 19 stress test of $ 4,000 is forming a descending channel targeting $ 3,600 by mid-December. an 18% correction from the current price of $ 4,400.

Despite outperforming Bitcoin (BTC) by 16% in the last month alone and the ETH / BTC pair climbing to 10-week highs, Ether appears to be struggling with its own success.

Ether / USD price in Bitstamp. Source: TradingView

Users continue to complain about Ethereum gas fees, averaging over $ 45 for the past three weeks. As problematic as it may be, it leaves no doubt that the largest decentralized finance (DeFi) and non-fungible token (NFT) markets continue to thrive on Ethereum.

Rising regulatory uncertainties in the United States remain a decisive limiting factor for Ether’s rally. On November 24, the Securities and Exchange Commission, or SEC, clarified that the crypto panel at the public meeting scheduled for December 2 would focus on the regulatory framework.

Not even the 1 million ETH burned since the implementation of EIP-1559 in August was not enough to keep the price of Ether at all-time highs. As the network emits around 5.4 million ETH per year, Ether is still an inflationary asset. Still, the price of Ether has risen 16% versus Bitcoin since Oct. 25, partially reflecting that impact.

Bullish calls dominate Friday’s ETH options expiration

Despite the 10% correction to $ 4,400 from the all-time high of $ 4,850 on November 10, Ether calls largely dominate Friday’s expiration.

Ether options add open interest for November 26. Source: Coinglass

The green area representing the $ 820 million call options is the majority of the November 26 expiration. Compared to the $ 440 million put instruments, there is an 87% difference.

However, the 1.87 call-put ratio should not be taken literally, as the recent drop in ETH will likely wipe out 77% of bullish bets. For example, if the price of Ether remains below $ 4,400 at 8:00 am UTC on November 26, only $ 165 million in those call options will be available at expiration.

In other words, what good is having the right to buy Ether at $ 4,400 or $ 4,600 if it trades below that price?

Bears need less than $ 4,200 ETH to balance the scales

Below are the three most likely scenarios based on current price action. The number of option contracts available on November 26 for bullish (call) and bearish (put) instruments vary depending on the expiration price of ETH. The imbalance that favors each side constitutes the theoretical benefit:

  • Below $ 4,100: 15,400 calls vs. 15,200 put options. The result is balanced.
  • Between $ 4,200 and $ 4,500: 38,400 calls versus 8,800 put options. The net result is $ 130 million in favor of call instruments.
  • Above $ 4,500: 50,200 calls versus 2,300 put options. The net result favors call (bull) instruments by $ 215 million.

This gross estimate considers call options that are used in bullish bets and put options exclusively in neutral to bearish operations. Still, this oversimplification ignores more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Ether above a specific price. But sadly, there is no easy way to estimate this effect.

Both parties have incentives to move the price

The bears need a 7.5% move from $ 4,400 to less than $ 4,100 to balance the balance and avoid a loss of $ 130 million. On the other hand, the bulls need a 2.3% price increase to $ 4,500 to increase their earnings by $ 85 million.

Traders should consider that the amount of effort a seller takes to push price is immense and generally ineffective during bull markets. Currently, the options market incentives are balanced, favoring the price range of $ 4,200 to $ 4,500, which entitles the bulls to a profit of $ 130 million on Friday, November 26.

The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement involves risk. You should do your own research when making a decision.