$1.26 Billion in Ethereum Options Expires Friday and Bulls Are Ready to Drive ETH Price Higher

Ether’s 53% rally (ETH) between July 13 and July 18 gave bulls a head start on the $1.26 billion monthly options expiration in July. The change came when Ethereum developers set a tentative date for “Merge,” a transition out of expensive proof-of-work (PoW) mining engine.

Ether USD price index, 12 hour chart. Source: Trading View

According to some analysts, by removing the additional issuance of ETH used to finance the energy cost required in traditional mining consensus, Ether could finally achieve the status of “ultrasonic currency”.

On Beacon Chain, issuance will be around 1,600 ETH per day, significantly reducing inflation compared to 13,000 ETH per day on PoW.

Merger sets monetary policy effects for Ethereum to become the ultrasonic currency

(15/10) pic.twitter.com/9hWjhuGpNK

— Akshay Jain (@akshayjain865) July 25, 2022

Whether or not sound monetary policy revolves around ever-changing emission and burning rules remains an open question, but there is no doubt that the video call from ethereum developers July 14 helped catapult ETH price.

On July 26, a sudden and dramatic increase in active addresses on the Ethereum network raised several speculations as to whether Ether was aiming for its previous all-time high. Analyst firm Santiment reported that the number of daily active addresses The 24 hours reached 1.06 million, beating the previous high of 718,000 in 2018. Theories like “Binance is doing a maintenance sweep” have surfaced, but nothing has been confirmed yet.

The main victims of Ether’s impressive 20% rally on July 27 were low-leverage traders (shorts) who faced $335 million in global liquidations on derivatives exchanges, data shows. from Coinglass.

The bears placed their bets below $1,600

The open interest for the monthly ether option expiry in July is $1.27 billion, but the actual value will be lower as the bears have been too bullish. These traders got very comfortable after ETH fell below $1,300 between June 13-16.

The pump above $1,500 on July 27 came as a surprise as only 17% of put options on July 29 were placed above this price level.

Ether options aggregate open interest for July 29. Source: CoinGlass

The call-to-put ratio of 1.39 shows the dominance of open interest to buy (call) $730 million against put options of $530 million. However, since Ether is near $1,600, most bearish bets will likely prove worthless.

If the Ether price remains above $1,500 at 08:00 UTC on July 29, only $80 million in put options will be available. This difference occurs because the right to sell Ether for $1,500 or less is useless if Ether is trading above that level at expiry.

Bulls are comfortable even below $1,600

Below are the four most likely scenarios based on the current price action. The number of option contracts available on July 29 for buy (bullish) and sell (bearish) instruments varies depending on the expiry price. The imbalance that favors each side constitutes the theoretical gain:

  • Between US$ 1,400 and US$ 1,500: 120,400 calls against 80,400 puts. Net income favors longs (bullish) at $60 million.
  • Between US$ 1,500 and US$ 1,600: 160,500 calls versus 55,000 puts. The bottom line favors the bulls at $160 million.
  • Between US$ 1,600 and US$ 1,700: 187,100 calls versus 43,400 puts. Net income favors longs (bullish) at $230 million.
  • Between US$ 1,700 and US$ 1,800: 220,800 calls against 40,000 puts. The bull’s lead increases to $310 million.

This raw estimate takes into account put options used in bearish bets and call options exclusively in neutral to bullish trades. Even so, this oversimplification ignores more complex investment strategies.

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

Bears should throw in the towel and focus on the August expiry

Ether bulls need to hold the price above $1,600 on July 29 to guarantee a decent profit of $230 million. On the other hand, the bears’ best-case scenario calls for a push below $1,500 to reduce the damage to $60 million.

Given the brutal leveraged short positions of $330 million settled on July 26 and 27, the bears should have less room to drive the price of ETH lower. That said, the bulls are in a better position to continue pushing ETH higher after the monthly options expire on July 29.

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


Leave a Comment