The Ether (ETH), has seen a 950% increase in 2021, and it appears that the altcoin is not planning to stop. You can see this in the highly optimistic bets on October’s $1.25 Billion options expiry. This phenomenon isn’t just for Ether bulls.
It is not cheap to have the right to buy Ether at a fixed future price. The Oct. monthly expiry $5,000 call option was trading at ETH 0.082, which is approximately $320. These options are no longer worth anything for bulls.
The $25 gas fees for Ethereum transactions is still high and will continue to favor competitors blockchains that have their own decentralized finance markets (DeFi) or nonfungible token markets (NFT). Despite these fees, the largest smart contract network still has 80% or more total value locked (TVL), and volumes of decentralized exchanges(DEX).
Coinbase price in USD for Ether Source: TradingView
Ether price has been on a path towards breaking its $4,380 all time high since Sep. 21.
Ether bulls will be happy to hear that ETH 2.0’s Altair upgrade was a success, with 99% upgrading. This upgrade is the first since December 2020, when the Beacon Chain was launched online. The main changes are support for lightweight nodes as well as increased penalties for invalidators who remain offline.
Bulls were optimistic but still far ahead
Given the bullish outlook surrounding Bitcoin (BTC), exchange-traded funds approval, it’s now understandable why bulls placed 55% or more of their bets at $4,000. These call (buy), options quickly lost value as the Oct. 29 deadline approaches.
Bears will face a test of strength when the October monthly expiry is reached. Any price exceeding $4,000 equals a profit of $205 million for bulls.
Open interest in Ether options for Oct. 29 is a total of $2.5 billion Source: Bybt
The above data indicates that bears placed $535,000,000 in bets for Oct. 29, expiry. However, it seems like they were taken by surprise as 96% (or sell) options are likely become worthless.
This means that if Ether is above $4,100 by Friday’s 8:00 UTC expiry, then only $12 million worth neutral-to-bearish options will be activated.
There are a few reasons Ether price should be kept above $4,200 by bulls
These are the most likely outcomes for the Oct. 29 expiry. The theoretical profit is the imbalance that favors one side. The expiry price determines the amount of active call (buy) or put (sell) contracts.
Between $3,900 to $4,000: 35.100 calls vs. 9.800 puts. The net result favors the bull call (call) instruments. Between $4,000 and $4200: 54,900 calls against 3,600 puts. The net result favors the call (bull), instruments at $205 million. Above $4,200: 66.300 calls vs. 600 put. The net result favors the call (bull), instruments at $275 million
This rough estimate includes call options that are only used in bullish bets, and put options in neutral to bearish trades. Investors might use a more complicated strategy, which typically has different expiry dates.
To reduce their losses, bears require a 7% price adjustment
Each scenario shows that bulls are in complete control of Oct. 29’s expiry. There is no reason to expect the price to fall below $4,200. To avoid a loss of $205 millions or more, bears must make a 7% decline from $4,270 to below $4,000.
However, traders need to remember that bull runs are not easy and sellers often have to exert a lot of effort to push the price. The derivatives data also shows a significant short-term advantage over call (buy), options, which is fueling more bullish bets for the week ahead.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.