Friday , May 7 2021

$ 161 million expiration of Ethereum options promotes bull if ETH makes $ 2,000 level in support

With no short-term solution in sight for the increasing fees of the network, some investors are afraid that the price of Ether (ETH) may get a correction. Proposal EIP-1559 is set to combine with the forthcoming London update, and this will change the structure of the gas rate, but traders will have to deal with high rates until then.

The flexible proposal for block size aims at a more predictable tariff pricing model, but this update is scheduled for July, which means in the short term, Ether may be subject to price pressure. In addition, the miners have expressed their concern, as the new proposal aims to burn part of the tariffs to create deficits, reducing their incomes by up to 50%.

To advise against adverse events, professional traders generally buy protective put options without reducing their positions, especially those that cultivate and strike with high returns. Although these are generally expensive for longer term periods, trading is also offered on a weekly or bi-weekly basis on some exchanges.

Put-to-call ratio favors bears, but there is more

Unlike futures contracts, options are divided into two segments. Call options allow the buyer to purchase Ether at a fixed price on the expiration date. In general terms, These are used in neutral arbitrage trades as bullish strategies.

Meanwhile, put options are often used as protection against negative price movements.

To understand how these competing forces balance, one has to compare the call and put options at each strike price.

For those unfamiliar with options strategies, Cointelegraph recently explained how losses can be minimized despite holding a bullish position.

Aggregate open interest with Ether which completes on April 9th. Source: Bybt

The above data shows that the expiration of Ether on April 9 has 77,800 Ether contracts, worth $ 161 million at the current level of $ 2,070. Meanwhile, the call-put ratio promotes the lowest put options by 11%, dominating strikes below $ 1,850. Meanwhile, bullish call options have filled the scene above $ 1,900.

Despite the imbalance, the net impact lies with the bulls

Option markets are an all-or-nothing game, meaning they have value or become worthless if they trade above the strike price of the call option, or the opposite for put option holders.)

That is why, By excluding neutral to bearish put options 25% below the current price of $ 2,070 and call options above $ 2,480, it is easier to estimate the potential impact of next Friday’s downfall., Incentives to pump or lower the price by more than 25% are less likely, as the potential gains will rarely exceed the cost.

This selection attracts 33,000 call options from strikes from $ 1,200 to $ 2,480, currently worth $ 68 million. Meanwhile, the most bearish put options up to USD 1,580, amounts to 18,100 Ether contracts worth USD 37 million. Therefore, buyers have a small advantage before the expiration of April 9th.

The balance between the call and put options initially showed a buy-sell relationship that avoids the most bearish put options. However, by excluding put options 25% below the current price, the net result clearly promotes the bulls. This reinforces the notion that the April 9 expiration date should not be considered bearish.

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

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