Ethereum bulls are likely to make $ 130 million on ETH options despite a two-week slump


Ether (ETH) investors have no reason to complain after the 344% profit accumulated through November 24th in 2021. Still, analysts fear the $ 4,000 resistance test on Nov. 19 will create a descending channel targeting $ 3,600 by mid-December. an 18% correction from the current price of $ 4,400.

Despite Bitcoin’s (BTC) outperforming 16% in the last month alone and the ETH / BTC pair rising to 10-week highs, Ether seems to be struggling with its own success.

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Ether / USD price on Bitstamp. Source: TradingView

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

Growing regulatory uncertainties in the US remain a key limiting factor for the rally in Ether. On November 24th, the Securities and Exchange Commission (SEC) made it clear that the crypto panel will focus on the regulatory framework in its public meeting scheduled for December 2nd.

Not even the one million ETH burned since EIP-1559 was launched in August was not enough to keep the price of ether at an all-time high. With the network emitting about 5.4 million ETH per year, ether remains an inflationary asset. Still, the price of ether has risen 16% versus Bitcoin since October 25, partially reflecting that impact.

Bullish calls dominate the expiry of the ETH options on November 26th

Despite the 10% correction to USD 4,400 since the all-time high of USD 4,850 on November 10, the ether call (buy) options largely dominate the expiration on November 26.

Ether options aggregate open interest for November 26th. Source: Coinglass

The green area, which represents the $ 820 million call (buy) options, is the lion’s share of the November 26th maturity. When compared to the $ 440 million worth of put (sell) instruments, there is an 87% difference.

Still, the 1.87 call-to-put ratio should not be taken literally as the recent drop in ETH is likely to wipe out 77% of bullish bets. For example, if the price of Ether stays below $ 4,400 at 8:00 a.m. UTC on November 26th, those call (buy) options worth $ 165 million will be available on the expiration date.

In other words, what is the use of having the right to buy ether for $ 4,400 or $ 4,600 if it trades below that price?

It takes bears less than $ 4,200 to balance the scales

Below are the three most likely scenarios based on the current price action. The number of options contracts for bull (call) and bear (put) instruments available on November 26th depends on the ETH expiry price. The imbalance favored by each side represents the theoretical gain:

  • Under $ 4,100: 15,400 calls vs. 15,200 puts. The result is balanced.
  • Between $ 4,200 and $ 4,500: 38,400 calls vs. 8,800 puts. Net income is $ 130 million in favor of the call (buy) instruments.
  • Over $ 4,500: 50,200 calls vs. 2,300 puts. Net income favors call (bull) instruments by $ 215 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 might have sold a put option, effectively taking positive exposure to ether above a certain price. But unfortunately there is no easy way to gauge this effect.

Both sides have incentives to move the price

Bears need a 7.5% move from $ 4,400 to below $ 4,100 to level the scales and avoid a loss of $ 130 million. Bulls, on the flip side, need a 2.3% price hike to $ 4,500 to increase their profits by $ 85 million.

Traders need to keep in mind that the effort it takes for a seller to put pressure on the price is immense and is usually ineffective in bullish markets. Currently, the incentives for the options market are balanced, favoring the $ 4,200-4,500 price range, allowing the bulls to make a profit of $ 130 million on Friday November 26th.

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.