The price of Ether (ETH) has been quite volatile lately and to the surprise of many traders, the USD 4,000 level continues to present significant resistance. Currently the price respects the ascending channel that started in August but every time the support is received is tested, the risk of a sharp correction increases. With that in mind, the $ 340 million option expiration this Friday is likely to be dominated by neutral to bearish put options.
The bulls had a bigger bet on the expiration date, but it appears they were overly optimistic on October 1st, so their call (buy) option of $ 215 million is approaching the ignore approach.
It is possible that Ether will fall victim to its own success as the demand for decentralized financial applications (DeFi) and the minting of non-fungible tokens (NFTs) continue to clog the network. This has resulted in the average gas fee exceeding $ 20 in the past ten days.
Notice above how OpenSea, the largest NFT marketplace, accounted for over 20% of the gas consumption of the entire Ethereum network in the past 24 hours.
Analyzing the incredible demand for blockchain transactions, Polygon co-founder Sandeep Nailwal said it was a matter of time before Ethereum overtook Bitcoin as the dominant Layer 1 protocol.
The negative news continues, however, as the fourth largest Ethereum mining pool will shut down its operations in China citing “regulatory guidelines”. In addition, SparkPool, the second largest ether mining pool, will also close this month.
For Friday’s $ 340 million option expiration, the bulls will have to push the price above $ 3,000 to avoid significant downward pressure.
As mentioned above, the bulls were taken by surprise when the call (buy) instruments were placed at $ 2,900 or higher. Therefore, if Ether stays below this price on September 17th, only $ 1.4 million will be activated in neutral to bullish call options on expiry.
This means that a put option of USD 3,000 will become worthless if Ether stays below that price at 8:00 a.m. UTC on October 1st.
Cops have placed more bets, but there is a glitch
A call-to-put ratio of 1.74 represents the small difference between a call option (buy) of $ 215 million and a put option (sell) of $ 125 million. This broader view is while in the bulls’ favor, it requires more detailed analysis as some of these bets are unreliable given the current price level of $ 2,800.
Here are the four most likely scenarios for Ether price. An imbalance in favor of either party represents a theoretical gain on forfeiture.
Depending on the expiry price, the number of call (buy) and put (sell) contracts will be active differently:
- From $ 2,400 to $ 2,500: 0 calls compared to 38,050 bookings. The net result was $ 95 million in favor of protective (bear) put instruments.
- From $ 2,500 to $ 2,800: 100 calls versus 22,300 bookings. The net result is $ 60 million in favor of protective instruments (bears).
- From $ 2,800 to $ 3,000: 2,300 calls versus 13,800 bookings. The net result is $ 33 million in favor of protective (bear) put instruments.
- From $ 3,000 to $ 3,200: 9,600 calls versus 6,700 bookings. The net result is a bear-bull balance.
This rough estimate assumes that calls are only used in bullish strategies and put options are used in neutral to bearish trades. However, investors may have used more complex strategies that often involve different expiration dates.
Cops are sunk one way or another
The bears have absolute control over Friday’s deadline and have enough momentum to keep the price below $ 2,800. However, one has to keep in mind that when price trends are negative, like now with Ether, sellers can cause a negative 2% movement by placing big offers and strong sales.
On the flip side, the bulls need a positive 7% swing in price to bring Ether above $ 3,000 to offset with the options expiration on Friday. It is impossible to calculate how much a trader would have to spend to drive the market in this direction, although it may seem like a huge task.
If there are no surprises before October 1, the price of Ether will continue to trade below $ 2,800.