Although Ether (ETH’s) price has experienced a 16.8% correction since failing to close above $2,000, it was not enough for bears to gain an advantage in the August $1.27 Billion monthly options expiry.
Chart of the Ether USD price index at 12 hours. Source: TradingView
There are mixed feelings currently about the network’s upcoming switch to a proof of-stake consensus network. Analysts like @DWhitmanBTC believe that the potential benefits of PoS don’t outweigh the lack of a supply limit and multiple changes to the monetary policy over the course of time.
uLtRaSoUnD MOnEy #Ethereum is even money? What is the supply limit if so? What is the monetary policy? It is impossible to believe that it will be altered.
— Dick Whitmanaut /21M – August 24, 2022 (@DWhitmanBTC).
The tentative Merge migration date announcement made by Ethereum developers on July 14th had a positive impact on Ether’s price, despite its long-term implications. Crypto Rover, an influential technical analyst and influencer, stated that Ether would drop “so hard on the Merge Day” as traders begin to unwind their positions.
I believe #Ethereum will plummet so hard on Merge Day. The spot market is not the best place to buy anticipation, but the futures market. Beware.
— Crypto Rover (@rovercrc), August 23, 2022
One thing is certain, the sharp correction that occurred on Aug. 18, by leveraged Ether buyers was not anticipated. Coinglass data shows that the move liquidated $208 millions at derivatives exchanges.
Bears bet below $1,600
Open interest for Ether’s July month options expiry is $1.27 Billion, but this number will actually be lower because bears were too optimist after ETH traded below $1600 between Aug. 20-22. Bears were surprised to see that only 17% have placed put (sell), options above this price level for Aug. 26.
Open interest in Ether options for August 26. Source: Coinglass
The 1.18 ratio of call-to-put shows that the $685million call (buy) open interests is dominant over the $585million put (sell). However, Ether is close to $1,650 so most bearish bets are worthless.
Only $95 million of put (sell) options are available if Ether’s price is above $1,600 on Aug. 26 at 8:00 UTC. This is because a right of selling Ether at $1600 or less on expiry is worthless if Ether trades higher than that level.
The August expiry is dominated by bulls
Based on current price action, the following are the most likely scenarios. The expiry price will determine the number of options contracts that are available for call (bull) or put (bear), depending on which instrument is being traded. The theoretical profit is the result of an imbalance in favor of each side.
Between $1,500 to $1,600: 108.200 calls vs. 103.9900 puts. The net result shows that bulls and bears are balanced. Between $1,600 to $1,700, 45,900 calls vs. 90,000. puts. The net result favors bull instruments by $150 million. Between $1,700 to $1,800, 192,700 calls against 26,000 puts. The advantage of bulls increases to $290 millions.
This rough estimate includes the put options in bearish bets as well as the call options in neutral-to bullish trades. This oversimplification ignores complex investment strategies.
A trader might have sold a put option to gain positive exposure to Ether above a certain price. Unfortunately, it’s not possible to quantify this effect.
Related: Ethereum Merge in Trouble? Developers discover bugs before the update is scheduled
Bears could prevent a loss of $150 million
To make a profit of $150 million, Ether bulls must keep the price above $1600 on Aug. 26. To balance the odds and declare a draw, the bears need to push the price below $1,600 in order to achieve their best-case scenario.
Bulls will have less leverage to push ETH prices higher after the $270 million in leverage long (buy), positions that were liquidated on Aug. 18th and 19. However, bulls will not be able to drive Ethereum above $1,700 before the August monthly options expire.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.