Ethereum (ETH) has been facing a descending descending channel since September 1, although it is currently struggling to break through resistance.
But despite some obstacles, ETH bulls are likely to make $115 million on October 8 for their weekly Ether options. Inflation of 21% last week was enough to reduce the value of all of the $250 million bearish neutral options.
Ether price in dollars on Coinbase. Source: TradingView
Fear of regulation limits growth potential
Understandably, negative headlines about tighter regulation of cryptocurrency could have driven prices down last month, especially after China completely banned all cryptocurrency activities.
Major crypto exchanges, including Binance and Huobi, have shut down most services in mainland China, and some of the largest Ethereum mining pools have been forced to shut down completely.
Then came the negative press.
The founder of Citadel Securities, one of the largest market-based companies in the world, said the company does not trade cryptocurrencies due to regulatory uncertainty in the sector. The State Duma Committee on Financial Markets also talks about strengthening regulatory requirements for the protection of private investors and so on.
From the negative news feed, one can understand why the bears made 86% of their bets at $3,200 or less. However, the past few weeks have certainly seen a rapid decline in these put and put options.
The end of the 8th of October will be a test of the bears’ strength, because any price above 3,500 dollars means a massacre with absolute control of the talks (buy).
On October 8, ether options generated open interest. Source: Bybt
On the surface, the $250 million neutral bearish trend dominated the 16% weekly decline compared to the $210 million call option.
However, the call option ratio is misleading, as the recent rally in ETH is likely to wipe out most of its bearish bets if Ether remains above $3,500 at 8:00 UTC on Friday. The right to buy ETH for $4,000 has no value if it is trading at a lower price.
The Bears must throw out the towel and accept the $115 million loss.
Specifically, 94% of the put options in which the buyer has the right to sell Ether at a predetermined price of $3,500 or less are placed. These neutral bearish instruments will be useless if ETH is trading above this price on the morning of October 8th.
Here are the four most likely scenarios in terms of current price levels, where the imbalance favored by each side represents potential expiration gains.
The data shows the number of contracts that will be available on October 8, based on the expiration price.
$3,100 to $3,300: 14,300 calls for $9,800. The result is a balance between bulls and bears.
$3,300 to $3,500: 21,650 calls for 1900 points. net result of $66 million in favor of the bulls;
$3,500 to $3,700: 32,050 calls to 0 clubs. net result of $115 million in favor of the bulls;
$3,700 to $3,900: 43,300 calls against 0 clubs. The profits of the bulls rose to 165 million dollars.
This approximation applies to call (put) options used in bullish strategies and call (put) options exclusively for neutral bearish trades. However, this simplification ignores more complex investment strategies.
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For example, a trader can sell a put option and receive a positive share of Ether above a certain price. Unfortunately, there is no easy way to assess this effect.
As you can see from the estimate above, from a bear’s perspective, that’s $47 million in profit if it drops below $3,500. On the other hand, bulls can increase profits by $49 million by moving the expiration date to October 8 above $3800.
The bulls are in complete control by the time October 8th ends, and the incentives for both sides to try to push the price up or down $200 seem to be balanced. So the bears should drop that towel and regroup before the end of next week.