Ethereum Bulls Expected To Earn $ 130 Million On ETH Options Despite Two-Week Crisis

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

Although it has outperformed Bitcoin (BTC) by 16% in the last month alone and the ETH / BTC pair has peaked in 10 weeks, Ether seems to be struggling with its own success.

Ether / USD price on Bitstamp. Source: TradingView

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

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

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Even the million ETH burned since the implementation of EIP-1559 in August was not enough to keep the price of Ether at record highs. As the network issues around 5.4 million ETH per year, Ether remains an inflationary asset. Still, the price of Ether has risen 16% against Bitcoin since October 25, partly reflecting this 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’s call (call) options largely dominate Friday’s expiration.

Ether options group together interest open for November 26. Source: Coinglass

The green area representing the $ 820 million call (buy) options represents the lion’s share of the November 26 expiration. Compared to sell (sell) instruments of $ 440 million, there is a difference of 87%.

Still, the call-to-put ratio of 1.87 shouldn’t be taken at face value, 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 0800 UTC on November 26, only $ 165 million of those call (buy) options will be available upon expiration.

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In other words, what’s the point of owning the right to buy ether at $ 4,400 or $ 4,600 if it is trading below that price?

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

Below are the three most likely scenarios based on the current price action. The number of options contracts available on November 26 for bullish (call) and bearish (put) instruments varies depending on the expiration price of ETH. The imbalance in favor of each side constitutes the theoretical gain:

  • Below $ 4,100: 15,400 calls against 15,200 put options. The result is balanced.
  • Between $ 4,200 and $ 4,500: 38,400 calls against 8,800 put options. The net result is $ 130 million in favor of call (buy) instruments.
  • Above $ 4,500: 50,200 calls against 2,300 put options. The net result favors call instruments (bull) by 215 million dollars.
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This raw estimate considers call options used in bullish bets and put options exclusively in neutral to bearish trades. Yet this oversimplification ignores more complex investment strategies.

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

Both parties are encouraged to change prices

Bears need a 7.5% move from $ 4,400 to less than $ 4,100 to balance the scales and avoid a loss of $ 130 million. On the flip side, bulls need a 2.3% price increase to $ 4,500 to increase their profits by $ 85 million.

Traders should consider that the amount of effort a seller needs to put pressure on the 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, giving the bulls the right 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 UKTN. Every investment and trade move involves risk. You should do your own research before making a decision.