Friday’s $ 540 million Ethereum options expiration favors traders with $ 5,000 targets

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

Even with Ether on track to $ 5,000, there are still many concerns about the network’s ability to absorb the strong demand from the decentralized finance (DeFi) and non-fungible tokens (NFT) industry.

Another potential setback to come is the US Treasury report on stablecoin regulations released on November 1. The report underscored the need for Congress “to provide appropriate federal prudential oversight on a consistent and comprehensive basis.”

In addition to this, competing networks offering interoperability with large DeFi projects are increasingly adopted, both in terms of total locked-in value (TVL) and market share on smart contracts. As an example, this week Solana (SOL) hit a new high of $ 236, overtaking Cardano (ADA) to become the fourth largest cryptocurrency.

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

Ether price on Coinbase in USD. Source: TradingView

By managing to stay ahead of the competition and creating a way to solve the scalability problem by migrating to a proof-of-stake network, Ethereum has attracted large investors. This includes the owner of the Dallas Mavericks Marc Cuban, the Houston Firefighters Relief and Retirement Fund, and billionaire Barry Sternlicht.

The expiration of the $ 540 million Ether options on November 5 may seem like an undisputed victory for the Bulls, but that was not the case a few weeks ago.

Ether options group together interest open for November 5. 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 misleading as the recent rally will likely wipe out most bearish bets.

For example, if the price of Ether remains above $ 4,500 at 8:00 AM UTC on November 5, only $ 1.5 million of those put (put) options will be available upon expiration. There is no value in a right to sell Ether at $ 4,500 if it is trading above that price.

Bulls are comfortable above $ 4,500

Below are the four most likely scenarios for the $ 540 million expiration on November 5. The imbalance in favor of each side represents the theoretical profit. In other words, depending on the expiration price, the amount of buy (buy) and sell (sell) contracts that become active varies:

  • Between $ 4,300 and $ 4,400: 6,870 calls against 6,000 put options. The net result is balanced between bulls and bears.
  • Between $ 4,400 and $ 4,600: 13,750 calls against 350 put options. The net result is $ 60 million in favor of call instruments (bull).
  • Between $ 4,600 and $ 4,700: 18,500 calls against 50 put options. The net result is $ 85 million in favor of call instruments (bull).
  • Above $ 4,700: 22,800 calls against 0 put. The net result is complete dominance, with the bulls profiting by $ 107 million.

This raw estimate considers call options used in bullish bets and put options exclusively in neutral to bearish trades. However, this oversimplification ignores more complex investment strategies.

For example, a trader could have sold a put option, thereby gaining positive exposure to Bitcoin above a specific price. But, unfortunately, there is no easy way to estimate this effect.

Bears need 6% price correction to reduce their loss

The only way for bears to avoid losses on Friday’s expiration is to pressure the price of ether below $ 4,400 on November 5, down 6% from the current $ 4,660. . So, unless there is news or worrying events announced before the weekly options deadline, bulls are expected to earn $ 85 million or more.

Traders should also take into account that during bull runs the amount of effort a seller needs to impact the price is immense and generally ineffective. Currently, options market data points to a huge advantage in call (call) options, fueling bullish bets for Ether, raising expectations of a rally to $ 5,000.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trade move involves risk. You should do your own research before making a decision.


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