Despite the two-week plunge, the Ethereum bulls may still make a profit of US$130 million from ETH options

Ether (Ethereum) After accumulating a 344% increase in 2021, until November 24, investors have no reason to complain. However, analysts worry that the resistance test of $4,000 on November 19 is forming a downward channel, and the goal is to reach $3,600 by mid-December, an increase of 18% from the current price of $4,400.

Although outperforming Bitcoin (Bitcoin) With a 16% rise in the past month alone, and the ETH/BTC currency pair climbed to a 10-week high, Ether seems to be struggling for its own success.

The price of Ether/USD on Bitstamp. Source: TradingView

Users continue to complain about ethereum gas fees, which have averaged more than $45 in the past three weeks. No matter how many problems there are, there is no doubt that the largest decentralized finance (DeFi) and non-fungible token (NFT) markets continue to flourish on Ethereum.

The increase in regulatory uncertainty in the United States is still the decisive limiting factor for the rise of Ethereum. November 24, Securities and Exchange CommissionOr the SEC clarified that the cryptocurrency group will focus on the regulatory framework at a public meeting scheduled to be held on December 2.

Not even 1 million ETH burned Because the implementation of EIP-1559 in August was enough to keep the price of Ether at a historical high. Since the network issues approximately 5.4 million ETH each year, Ether is still an inflationary asset. Nevertheless, since October 25, the price of Ether has increased by 16% over Bitcoin, which partially reflects this effect.

Friday’s ETH option expiration is bullish and bullish

Although it has pulled back 10% to US$4,400 since it hit an all-time high of US$4,850 on November 10, Ether call (buy) options still dominate on Friday’s expiration date.

Ether Options aggregates open positions on November 26. Source: Coinglass

The green area representing US$820 million in call (buy) options is the largest share expiring on November 26. Compared with the $440 million put (sell) instrument, there is an 87% difference.

Nevertheless, the 1.87 call option ratio should not be taken literally, as the recent fall in ETH may eliminate 77% of the call bet. For example, if the price of Ether remains below $4,400 at 8:00 am UTC on November 26, then only $165 million worth of these call (buy) options will be available on the expiry date.

In other words, if the transaction price of Ether is lower than that price, what are the benefits of holding the right to buy Ether for US$4,400 or US$4,600?

Shorts need less than $4,200 in ETH to balance the scale

The following are the three most likely scenarios based on current price movements. The number of option contracts available for long (call) and short (put) instruments on November 26 depends on the expiring ETH price. An imbalance that benefits both parties constitutes a theoretical profit:

  • Less than $4,100: 15,400 call options and 15,200 put options. The result is balanced.
  • Between US$4,200 and US$4,500: 38,400 call options and 8,800 put options. The end result is $130 million in favor of bullish (buy) instruments.
  • More than 4,500 USD: 50,200 call options and 2,300 put options. The net result is in favor of a bullish (bull market) instrument of $215 million.

This rough estimate takes into account that call options are used for call bets, while put options are only used for neutral to put transactions. Nevertheless, this over-simplification ignores more complex investment strategies.

For example, traders could have sold put options, effectively gaining exposure to positive ether above a certain price. Unfortunately, there is no easy way to estimate this impact.

Both parties have the motivation to drive price changes

Short positions need to reduce 7.5% from US$4,400 to below US$4,100 to balance the scale and avoid a loss of US$130 million. On the other hand, the bulls need to increase the price by 2.3% to US$4,500 to increase profits by US$85 million.

Traders must take into account that the effort required by sellers to put pressure on prices is enormous and is usually ineffective during bull markets. At present, the incentives in the options market are balanced, favoring the price range of US$4,200 to US$4,500, allowing the bulls to make a profit of US$130 million on Friday, November 26.

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