Ether (ETH) bulls are probably very pleased with the 368% gains so far in 2021, and it doesn’t seem like a day goes by without the altcoin hitting all-time highs.
Even with Ether at $5,000, there are still many concerns about the network’s ability to meet the strong demand coming from the decentralized finance (DeFi) and non-financial token (NFT) sectors.
Another possible setback is the US stablecoin financial report which was released on the 1st of November. The report stresses that Congress needs to “ensure appropriate federal oversight in a consistent and comprehensive manner.”
In addition, competing networks have been implemented that provide interoperability with large DeFi projects, both in terms of blocking total value (TVL) and smart contract market share. For example, Solana (SOL) hit a new all-time high at $236 this week, overtaking Cardano (ADA) to become the fourth largest cryptocurrency.
According to CryptoSlam data, Solana NFT secondary sales reached $495 million in the past three months, but despite this, the Ethereum blockchain remains the most popular, with secondary NFT sales reaching $1.76 billion in October.
ETH price on Coinbase in US dollars. Source: TradingView
With the ability to stay ahead of the competition and create a way to address the scalability issue by moving to the Proof of Stake network, Ethereum is attracting some big investors. These include Dallas Mavericks owner Mark Cuban, the Houston Relief and Retirement Fund, and billionaire Barry Sternlecht.
The November 540 million Ether options expiration might seem like an undeniable victory for the bulls, but it wasn’t just a few weeks ago.
Open interest in Ethereum options will begin on November 5th. Source: Bybt
At first glance, $300 billion put and call options outnumber $240 million with weekly expiration dates of 20%. However, the 0.80 put option ratio is misleading as the recent rally is likely to erase most of the declines.
For example, if the price of Ether remains above $4,500 at 0800 UTC on November 5th, only $1.5 million of these put options will be available at expiration. The right to sell Ether at $4,500 has no value if it is trading at a price higher than that.
Comfortable bulls for $4500
Here are the four most likely scenarios for the $540 million expiration on November 5th. The imbalance in favor of each side has a theoretical value. In other words, depending on the expiration price, the number of call (buy) and sell (sell) contracts that become active varies:
Between $4,300 and $4,400: 6,870 calls for 6,000 puts. The result is a balance between bulls and bears.
Between $4,400 and $4,600: 13,750 calls for 350 points. The net result is $60 million, which is in favor of the upstarts.
Between $4,600 and $4,700: 18,500 calls for 50 positions. The net result is $85 million, which is in favor of up-and-coming gadgets.
Over $4,700: 22,800 calls for zero placement. The net result is complete domination with the bulls earning $107 million.
This rough estimate takes into account that call options are used in bullish play and that put options are used exclusively in neutral to bearish trades. However, this simplification ignores more complex investment strategies.
For example, a trader can sell a put option and effectively get a positive share of Bitcoin (BTC) above a certain price. Unfortunately, there is no easy way to calculate this effect.
Björner needs a 6% price adjustment to reduce the loss.
The only way for the bears to avoid losses by the end of Friday is to push the price of Ether below $4,400 on November 5, which is 6% less than today at $4,660. Thus, if no news or events are announced before the option’s weekly expiration date, the bulls are likely to win $85 million or more.
Dealers should also keep in mind that during bull runs the seller has to put in a lot of effort to influence the price, and this is usually ineffective. At the moment, options market data is pointing to a huge advantage over put (call) options, fueling the bullish trend for Ether, pushing the bullish expectations to $5,000.