ETH price is on the cusp of a new all-time high and derivatives data shows bulls may attempt to capture it ahead of Friday’s $1.25 billion Ethereum options expiry.
Ether (ETH) has gained 950% in 2021 and from the look of things the altcoin has no intent of stopping. This can also be seen in the ultra-optimistic bets for October’s $1.25 billion options expiry. However, this phenomenon is not exclusive to Ether bulls.
The right to acquire Ether at a fixed price in the future does not come at a cheap price. On Sep. 4, the $5,000 call option for Oct. monthly expiry was trading at ETH 0.082 which is equivalent to $320. Unfortunately, for the bulls, these options are now worthless.
Gas fees on Ethereum transactions are still above $25 and this will continue to favor competitor blockchains with their own decentralized finance (DeFi) and non-fungible tokens (NFT) markets. Even with these high fees, the leading smart contract network still holds 80% or higher total value locked (TVL) and decentralized exchanges (DEX) volumes.
The bullish trend that initiated on Sep. 21 has been driving Ether price on a path to break its $4,380 all-time high in a couple of weeks.
Furthermore, Ether bulls will also be pleased to know that ETH 2.0's Altair upgrade was successful, with 99% of the nodes upgraded. That is the first upgrade since the Beacon Chain went online in December 2020 and the main changes include support for lightweight nodes and increased penalties for validators being offline.
Bulls were too optimistic, but they're still ahead
Based on the bullish expectations surrounding a Bitcoin (BTC) exchange-traded fund approval, it is now possible to understand why bulls placed 55% of their bets at $4,500 or higher. However, as the deadline for Oct. 29 expiry approaches, these call (buy) options quickly lost their value.
The October monthly expiry will be a strength test for bears because any price above $4,000 means a $205 million or higher profit for the bulls.
As the above data shows, bears placed $535 million in bets for Friday's expiry, but it appears that they were caught by surprise, as 96% of the put (sell) options are likely to become worthless.
In other words, if Ether remains above $4,100 on Friday's 8:00 am UTC expiry, only $12 million worth of neutral-to-bearish put options will be activated.
Bulls have a few reasons to keep Ether price above $4,200
Below are the four most likely scenarios for the Oct. 29 expiry. The imbalance favoring either side represents the theoretical profit. In other words, depending on the expiry price, the quantity of call (buy) and put (sell) contracts becoming active varies:
- Between $3,900 and $4,000: 35,100 calls vs. 9,800 puts. The net result is $100 million favoring the call (bull) instruments.
- Between $4,000 and $4,200: 54,900 calls vs. 3,600 puts. The net result is $205 million favoring the call (bull) instruments.
- Above $4,200: 66,300 calls vs. 600 puts. The net result is $275 million favoring the call (bull) instruments.
This raw estimate considers call options being exclusively used in bullish bets and put options in neutral-to-bearish trades. However, investors might have used a more complex strategy that typically involves different expiry dates.
Bears need a 7% price correction to reduce their losses
In each scenario, bulls have absolute control of this Friday's expiry and there is good reason for them to keep the price above $4,200. On the other hand, bears need a 7% negative move from $4,270 to sub-$4,000 to avoid a loss of $205 million or higher.
Nevertheless, traders must remember that during bull runs, the amount of effort a seller needs to pressure the price is immense and usually ineffective. Moreover, derivatives data shows a considerable short-term advantage from call (buy) options that is fueling even more bullish bets for next week.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.