The price of Ether (ETH) rose 50% at the top of the London hard fork as many investors expect the upgrade to solve the problem of high transaction fees and turn the altcoin into a deflationary asset.
Dan Morehead, CEO of Pantera Capital, has predicted that the upcoming upgrade would likely result in Ether “flipping” Bitcoin (BTC) as the leading cryptocurrency, but this is an issue that is highly controversial.
To understand the impact of recent price movement, traders should analyze the weekly flow of options. Deribit derivatives currently hold an 86% market share in this segment, and the aggregate open interest for Friday is currently $ 357 million.
ETH August 6th Options aggregate Open Interest. Source: Bybt
The neutral to bullish call (buy) option offers buyers upside protection, and the protective put (sell) option holders are protected from downward price movements. By measuring the price-risk exposure of each option, traders can better understand how bullish or bearish traders are positioned.
Option data shows that bears have been taken by surprise
The first view shows a reasonably balanced situation as the call-to-put ratio is 1.15, which slightly favors the neutral to bullish call option by 15%. This indicator reflects the 70,956 call options that correspond to an open interest of $ 191 million versus 61,632 put options that correspond to an open interest of $ 166 million.
As the graph shows, the bears did not expect ether to hit $ 2,700 and this can be seen where there are no protective put options (pink area) above this strike price.
If Ether stays above this level through Friday, all of those 61,653 contracts will be worthless. This is extremely unusual and reflects how unexpected the sharp rise was.
The bulls’ advantage largely depends on Ether at $ 2,600
While any protective put option above USD 2,700 becomes worthless, some of the neutral to bullish call options have been placed at USD 2,800 and USD 3,000. This means that even if Ether stays at $ 2,700, 39% of the outstanding interest of $ 191 million on the call options will be worthless.
At $ 2,700, the neutral to bullish call options have a $ 116 million advantage. However, if Ether trades below $ 2,600 on Friday, that number will drop to $ 75 million.
Either way, these weekly options largely favor bulls and add to their reserves for additional bets for the upcoming August expires. Bears should prepare to lick their wounds and wait for a local high before trying new bearish option trades.
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