Ether (ETH) has been facing a bearish retracement channel since September 1, although it is currently struggling to break its resistance.
But despite some difficulties, the ETH bulls are likely to make $ 115 million when the weekly ether options expire on Friday. Last week’s 21% pump was just enough to make the entire $ 250 million put option neutral to worthless.
Fear of regulation limits growth
Understandably, negative headlines about heightened regulatory scrutiny of cryptocurrencies have dampened prices in the last month, especially since China completely banned all crypto activity.
Major crypto exchanges, including Binance and Huobi, have suspended most of their services in mainland China, and some of the largest Ethereum mining pools have had to close entirely.
Negative press followed.
The founder of Citadel Securities, one of the world’s largest market makers, said the company was not trading cryptocurrencies due to regulatory uncertainties in the industry. The chairman of the Russian State Duma’s Financial Markets Committee also speaks about tightening regulations to protect retail investors; and such.
With the negative news flow, it’s understandable why the bears put 86% of their stakes on $ 3,200 or less. In the past few weeks, however, these put (put) options have rapidly depreciated in value.
The October 8th expiration date will be a test of strength for the bears as any price above $ 3,500 would spell a carnage with the absolute dominance of call options (buy).
At first glance, neutral to bearish instruments valued at $ 250 million dominated the weekly expiration of 16% of the call of $ 210 million.
The call-to-put ratio is misleading, however, as the recent ETH rally is likely to undo most of their bearish bets if the price of Ether stays above $ 3,500 on Friday at 8 a.m. UTC time. The right to buy ETH for $ 4,000 has no value if it trades below that price.
Bears should throw away the scarf and lose $ 115 million
Notably, 94% of put options where the buyer has the right to sell ether at a preset price are set at $ 3,500 or less. These neutral to bearish instruments will become worthless if ETH trades above this price on Friday morning.
Here are the four most likely scenarios, considering current prices, as an imbalance in favor of either party represents potential gains from the expiry.
The data shows how many contracts will be available based on the expiry price on Friday.
- From $ 3,100 to $ 3,300: 14,300 calls versus 9,800 bookings. The net result is somewhat balanced between bulls and bears;
- From $ 3,300 to $ 3,500: 21,650 calls versus 1,900 bookings. The net result gives the cops $ 66 million;
- From $ 3,500 to $ 3,700: 32,050 calls versus 0 bookings. Net income favors the cops $ 115 million;
- From $ 3,700 to $ 3,900: 43,300 calls versus 0 bookings. Bulls’ profit rose to $ 165 million.
This rough estimate looks at call (buy) options used in bullish and put (sell) strategies specifically for neutral to bearish trades. However, this simplification ignores more complex investment strategies.
Related: Bitcoin bears are at risk of being caught if BTC price stays above $ 50,000 – here’s why
For example, a trader might have sold a put, effectively taking positive exposure to ether above a certain price. But unfortunately there is no easy way to gauge this effect.
From a bear standpoint, there is a profit of $ 47 million if you push below $ 3,500, as the estimates above suggest. The bulls, on the flip side, can add $ 49 million to their edge by letting the option expire above $ 3,800 on Friday.
As of today, the bulls have absolute control over the October 8th expiration and the momentum for either side to try to push $ 200 up or down seems to be in equilibrium. So bears should throw the towel away and regroup for the next week.
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.