Ethereum bears want to score points with the weekly expiry of the ETH options of 340 million US dollars on Friday
Ether (ETH) price has seen quite a bit of volatility lately and to the surprise of many traders, the $ 4,000 level continues to offer considerable resistance. Currently the price is respecting the upward channel that started in August. But every time the support is tested, the risk of aggressive correction increases. With that in mind, the $ 340 million option expiration on October 1 is likely to be dominated by neutral to bearish put options.
Ether price at Bitstamp in USD. Source: TradingView
Bulls placed bigger bets on the expiration date, but it appears they were overly optimistic about October 1, so their $ 215 million call (buy) options are getting closer with the impending expiration date.
It is possible that Ether will fall victim to its own success as the demand for decentralized financial applications (DeFi) and the minting of non-fungible tokens (NFTs) continue to clog the network. This has resulted in the average gas charge exceeding $ 20 over the past ten days.
Largest gasoline consumers in the last 24 hours. Source: etherscan.io
Note above that OpenSea, the largest NFT marketplace, accounts for over 20% of the total gas consumption of the entire Ethereum network in the past 24 hours.
Analyzing the incredible demand for blockchain transactions, Sandeep Nailwal, co-founder of Polygon, says it is a matter of time before Ethereum overtakes Bitcoin as the dominant Layer 1 protocol.
However, there is still negative news as the fourth largest Ethereum mining pool will cease operations in China citing “regulatory guidelines”. In addition, SparkPool, the second largest ether mining pool, will also cease operations this month.
As for the $ 340 million option term on October 1, the bulls must push the price above $ 3,000 to avoid significant downward pressure.
Ethereum options aggregate open interest for October 1st. Source: Bybt.com
As mentioned earlier, the bulls were taken by surprise as the call (buy) instruments were placed at $ 2,900 or higher. If Ether stays below this price on September 17th, only neutral to bullish call options valued at $ 1.4 million will be activated on the expiration date.
This means that a put option of USD 3,000 will become worthless if Ether stays below that price at 8:00 a.m. UTC on October 1st.
Cops have placed more bets, but there is a catch
The call-to-put ratio of 1.74 represents the slight difference between the $ 215 million call (buy) option and the $ 125 million put (sell) option. While this broader view favors bulls, more detailed analysis is needed as some of these bets are implausible given the current price of $ 2,800.
Below are the four most likely scenarios for Ether price. The imbalance that favors both sides represents the theoretical gain from decay.
Depending on the expiry price, the number of calls (buy) and puts (sell) contracts that become active varies:
- Between $ 2,400 and $ 2,500: 0 calls vs. 38,050 puts. The net result is $ 95 million favoring the protective put instruments (bears).
- Between $ 2,500 and $ 2,800: 100 calls vs. 22,300 puts. The net result is $ 60 million favoring the protective put instruments (bears).
- Between $ 2,800 and $ 3,000: 2,300 calls vs. 13,800 puts. The net result is $ 33 million, with the protective put instruments (bears) benefiting.
- Between $ 3,000 and $ 3,200: 9,600 calls vs. 6,700 puts. The net result is balanced between bears and bulls.
This raw estimate takes into account that call options are only used in bullish strategies and put options in neutral to bearish trades. However, investors may have used more complex strategies that usually involve different expiration dates.
Cops get destroyed one way or another
Bears have absolute control over the October 1st expiration and have sufficient incentive to keep pushing the price below $ 2,800. However, one has to keep in mind that if the price trend is negative, like now with Ether, a seller can cause a negative movement of 2% by placing large offers and making aggressive sales.
Bulls, on the flip side, need a positive 7% swing if Ether rises above $ 3,000 to offset the October 1st option expiration. It is impossible to calculate how much a trader would have to spend to propel the market in this way, although it looks like a colossal task.
If there are no surprises before October 1, the price of Ether should continue to trade below $ 2,800.
The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph.com. Every step of investing and trading involves risk, so you should do your own research when making a decision.