The Ether (ETH), price has been volatile lately. To the delight of many traders, however, the $4,000 level still presents significant resistance. The price is currently in the upward channel that began in August, but the risk of an aggressive correction increases every time the support is tested. This Friday’s $340million options expiry will be dominated likely by neutral-to bearish put options.
Bitstamp price in USD for Ether Source: TradingView
Bulls placed bigger bets on the expiry, but it seems that they were too optimistic about Oct. 1. Therefore, their $215 million call option (buy) is closer to becoming a reality with the approaching expiry date.
Because of the continued congestion in the network, Ether may be seen as a victim of its success. This is due to the increased demand for Decentralized Finance (DeFi) and the minting non-fungible tokens(NFT). Over the past ten day, the average gas cost has risen to $20.
The largest gas spenders in the past 24 hours. Source: etherscan.io
You can see that OpenSea is the largest NFT marketplace and has used more than 20% of all the Ethereum network’s gas usage in the last 24 hours.
Sandeep Nailwal (Polygon founder) said that it was only a matter time before Ethereum takes over Bitcoin as the dominant layer-1 protocol after analyzing the huge demand for blockchain transactions.
The fourth-largest Ethereum mining platform will cease operations in China due to “regulatory policy.” SparkPool will also be closing its doors this month, which is the second-largest Ether mining site.
To avoid bearish pressure, bulls must push the price to $3,000 for Friday’s expiry of the $340million options.
Open interest in Oct. 1 Ethereum options Source: Bybt.com
The call (buy) instruments at $2,900 and higher caught bulls off guard, as noted above. Therefore, if Ether is below $2900 on Sept. 17, then only $1.4million worth of neutral-tobullish call options will be activated at expiry.
This means that a $3,000 put options becomes meaningless if Ether is below this price on October 1st at 8:00 UTC.
Bulls placed more wagers, but there is a catch
The 1.74 call/put ratio is the difference between $215 million worth (buy) options and $125 million worth (sell) options. Although bulls tend to win, this wider view requires a deeper analysis as some of these bets seem unlikely given the current $2800 price.
These are the most likely Ether price scenarios. The theoretical profit from expiry is represented by the imbalance favoring one side.
The expiry price determines the number of active calls (buy) or puts (sell).
Between $2,400 to $2,500: 0 calls against 38,050 put. The net result favors the protective put (bears) instruments. Between $2,500 and $800: 100 calls against 22,300 puts. The net result favors the protective put (bear), instruments. Between $2,800 and $3,000. 2,300 calls vs. 13,800 put. The net result favors the protective put (bear), which is worth $33 million. Between $3,000 and $3200, 9,600 calls are compared to 6,700 puts. The net result is balanced between bulls and bears.
This rough estimate includes call options that are only used in bullish strategies, and put options that are neutral-to-bearish. Investors might have used other expiry dates or more complicated strategies.
Bulls are destroyed in one way or the other
Friday’s expiry is in bear hands. They have enough incentive to keep the price under $2,800. It is important to remember that sellers can cause negative price movements of 2% by making large sales and placing aggressive offers.
To balance Friday’s options expiry, bulls will need to see a 7% positive price swing that takes Ether above $3,000. Although it is difficult to estimate how much a trader will need to make the market move that way, it seems like a daunting task.
If there are no surprises before Oct. 1, Ether should trade below $2,800.
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