Bulls fight to keep Ethereum price above $4K ahead of Friday’s $435M options expiry

Ether (ETH), flirted with the $4,380 all time high on Oct. 21, but was unable to surpass it by just a few dollars. According to some analysts, such as Scott Melker, an independent market analyst, approval of an exchange-traded funds (ETFs) is the next logical step by the U.S. Securities and Exchange Commission.

I believe we will see an Ethereum Futures ETF first before a physical Bitcoin ETF.
— October 20, 2021, The Wolf Of All Streets (@scottmelker).

Even though Ether bulls may be disappointed, they will likely make a $78million profit when Oct. 22’s options expire. The Ether gain of 35% month-to-date caught the bears off-guard.

Bitstamp price in USD for Ether Source: TradingView

Investor sentiment was positively affected by the Houston pension fund for firefighters, which announced a $25m allocation in Bitcoin (BTC), and Ether.

The recent rally is also due to the constant decrease in Ether’s liquid supply. Glassnode data shows that the Ether balance on exchanges has fallen to a 2-year low.

Ether balance available on exchanges. Source: Glassnode

Investors may be moving to Decentralized Finance (DeFi), in search of higher yields. While it does not prevent anyone selling, this movement creates incentives for long-term holding. The ETH 2.0 stake will become a validator.

Bears stunned when Ether broke the $4,000 barrier

Three weeks ago, Ether traded below $3,000 and this partly explains why 89% of bears bet on Ether trading at $4,000 on Oct. 22.

Friday’s expiry total interest is $230 million in calls (buy) options and $195 million puts(sell) options. This 27% advantage for neutral-to-bullish instruments makes Friday’s close. This general view is dependent on the expiry price.

ETH options total open interest for Oct. 22, Source: Bybt.com

Because of the recent Ether rally, most bearish bets will likely be wiped out by the current long-to–short metric. If Ether remains above $4,000 on Friday at 8:00 UTC, then only $22,000,000 of the put (sell), options will be available.

To balance the scales, bears require less than $4,000

Bulls are favored by any expiry price higher than $4,000, but most damage is done above $4,200, as their net profit rises to $136 millions.

Here are the most likely scenarios based on current prices. This data shows the number of contracts that will be available for bulls (call) or bears (put) instruments on Oct. 22.

Between $3,600 to $4,000: 15,640 calls against 14,340 puts. The net result is neutral. Between $4,000 and $4,000. 25,000 calls vs. 5,440 put. Bulls win by $78 Million. Between $4,200 & $4,400: 34.180 calls vs. 1,890 put. Bulls make $136 million more. Above $4,400, 44,230 calls are compared to 60 puts. Bulls dominate, with profits of $186 million.

The theoretical profit that could be made from an expiry is represented by the imbalance shown above.

This rough estimate includes call (buy), options that are used in bullish strategies, and put (sell), options that are only used in neutral-to bearish trades. A trader could have also sold a put option to gain Ether exposure above a certain price. This effect is difficult to quantify.

At least through Friday’s expiry, $4,000 will likely hold

To avoid a $78million loss, bears will need to adjust their current $4,100 price by 3%. It may not seem like much, but traders need to account for recent positive newsflows and other on-chain metrics.

Bulls have less than 10 hours before Oct. 22 expiry. They can secure a win by holding Ether above $4,000. The bears should be focusing on the Oct. 29 $1.1 billion monthly expiry.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.


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