On June 25, Ether (ETH) will experience its largest option expiration in 2021, as outstanding interest worth $ 1.5 billion will be paid. That number is 30% higher than the expiration date of March 26th, which happened when Ether price plunged 17% in 5 days and bottomed near $ 1,550.
However, Ether rebounded 56% after the options expired in March, reaching $ 2,500 in three weeks. These movements were completely uncorrelated with those of Bitcoin (BTC). Hence, it is important to understand whether a similar market structure could be underway for futures and options expiration on June 25th.
Recent history shows a mix of bullish and bearish catalysts
On March 11th, ether miners organized a “show of force” against EIP-1559 that would significantly reduce their revenue.
The situation worsened on March 22nd when CoinMetrics released an “Ethereum Gas Report” stating that the highly anticipated EIP-1559 network upgrade would be unlikely to solve the high gas problem.
Things started to change on March 29th when Visa announced plans to use the Ethereum blockchain to process a transaction made in Fiat, and on April 15th the Berlin upgrade was successfully implemented. According to Cointelegraph, after the start of Berlin, “the average gas tariff began to drop to a manageable level”.
Before jumping to conclusions and speculating whether these ether bottom phenomena near the imminent $ 1.5 billion option expiration are bullish or bearish, it is best to first analyze how big traders are positioned.
Note that the expiry in June includes over 638,000 ETH options contracts, representing a total of 45% of the total open positions of $ 3.4 billion.
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. Generally these are used in neutral arbitrage trades or bullish strategies.
In the meantime, put (sell) options are often used to hedge or protect against negative price fluctuations.
For bulls, $ 2,200 is the limit in the sand
As shown above, there is a disproportionate number of call options at USD 2,200 and higher strikes. This means that 73% of neutral to bullish options will be worthless if the price of ether is below that level on June 25th. The 95,000 call options still in play would represent an open interest of $ 228 million.
On the flip side, most of the protective put options opened at $ 2,100 or below. As a result, 74% of these neutral to bearish options will become worthless if the price stays above this level. Therefore, the remaining 73,700 put options would represent an open interest of $ 177 million.
It seems premature to say who might be the winner of this race, but given Ether’s current price of $ 2,400, it looks like both sides are reasonably comfortable.
However, traders should keep a close eye on this event, especially given the price impact that surrounded the March expiration.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.