The expiry of $ 540 million worth of Ethereum options on Friday favored traders with targets at $ 5,000

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Ether (ETH) bulls are likely very pleased with the 368% gains so far in 2021, and it seems like not a day goes by without the altcoin hitting a new all-time high.

Even with Ether on its way to $ 5,000, there are still many concerns about the network’s ability to absorb strong demand from the decentralized financial (DeFi) and non-fungible token (NFT) sectors.

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Another potential setback that lies ahead is the U.S. Treasury Department’s November 1st report on stablecoin regulation. The report stressed the need for Congress to “ensure adequate government oversight on a consistent and comprehensive basis.”

In addition, competing networks that provide interoperability with large DeFi projects have gained acceptance in terms of both Total Value Locked (TVL) and the market share of smart contracts. For example, Solana (SOL) rose to a new record high of $ 236 this week, outperforming Cardano (ADA) to become the fourth largest cryptocurrency.

According to data from CryptoSlam, Solana NFT secondary sales hit $ 495 million in the past three months, but the Ethereum blockchain remains the most popular, with NFT secondary sales of over $ 1.76 billion in October.

ETH price on Coinbase in USD. Source: TradingView

By managing to stay one step ahead of the competition and creating a way to solve the scalability problem by migrating to a proof-of-stake network, Ethereum has attracted some strong investors. These include Dallas Mavericks owner Mark Cuban, the Houston Firefighters ’Relief and Retirement Fund and billionaire Barry Sternlicht.

The November 5th expiration date of $ 540 million ether options may seem like an undisputed victory for the bulls, but that wasn’t the case a few weeks ago.

Ether options aggregate open interest for November 5th. Source: Bybt

At first glance, the $ 300 billion put (put) options dominate the weekly expiration by 20% compared to the $ 240 million call (buy) instruments. Still, the 0.80 call-to-put ratio is deceptive as the recent rally is likely to nullify most bearish bets.

For example, if the price of Ether remains above $ 4,500 at 8:00 a.m. UTC on November 5th, those put (put) options worth only $ 1.5 million will be available on the expiration date. The right to sell ether for $ 4,500 has no value if it trades above that price.

Cops are fine over $ 4,500

Below are the four most likely scenarios for the $ 540 million due date on November 5th. The imbalance favored by each side represents the theoretical profit. In other words, depending on the expiry price, the amount of active call (buy) and put (sell) contracts varies:

  • Between $ 4,300 and $ 4,400: 6,870 calls vs. 6,000 puts. The net result is balanced between bulls and bears.
  • Between $ 4,400 and $ 4,600: 13,750 calls vs. 350 puts. The net result is $ 60 million in favor of the call (bull) instruments.
  • Between $ 4,600 and $ 4,700: 18,500 calls vs. 50 puts. Net income is $ 85 million in favor of call (bull) instruments.
  • Over $ 4,700: 22,800 calls vs. 0 puts. The net result is complete domination, with the bulls making $ 107 million.

This rough estimate takes into account that call options are only used in bullish bets and put options in neutral to bearish trades. However, this simplification ignores more complex investment strategies.

For example, a trader could have sold a put option, effectively taking positive exposure to Bitcoin (BTC) above a certain price. But unfortunately there is no easy way to gauge this effect.

Bears need a 6% price correction to reduce their loss

The only way for bears to avoid losses on Friday is to push the price of Ether below $ 4,400 on November 5th, a 6% decrease from the current $ 4,660. So unless news or events are announced before the weekly option period expires, the bulls are likely to make $ 85 million or more.

Traders also need to take into account that during bull runs, the effort it takes for a seller to influence the price is immense and usually ineffective. Currently, options market data suggests a significant advantage of call options fueling bullish bets on Ether and this raises expectations of a rally to $ 5,000.

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 carries risks. You should do your own research when making a decision.