Ether (ETH) has gained 950% in 2021 and, from the looks of it, the altcoin shows no signs of slowing down. This can also be seen in the ultra-optimistic bets for the USD 1.25 billion expiration on October 29. However, this phenomenon is not unique to Ether bulls.
The right to acquire Ether at a fixed price in the future is not cheap. On September 4, the $ 5,000 call option for the October monthly expiration was trading at 0.082 ETH, which is equivalent to $ 320. Unfortunately, for the bulls, these options are currently worthless.
Gas rates on Ethereum network transactions remain above $ 2 and this will continue to favor competitor networks with their own decentralized finance markets (DeFi) and non-fungible tokens (NFT). Even with these high fees, the largest smart contract network on the market still has 80% or more total locked value (TVL) and decentralized exchange (DEX) volumes.
The uptrend that started on September 21 has pushed Ether price above its all-time high of $ 4,380 in a couple of weeks.
Furthermore, the Ether bulls will also be delighted to learn that the Altair update to ETH 2.0 was a success, with 99% of the nodes updated. This is the first update since the Beacon Chain was activated in December 2020 and the main changes include support for thin nodes and increased penalties for disconnecting validators.
The bulls were overly optimistic, but still in the lead
Based on the bullish expectations surrounding the approval of a Bitcoin (BTC) exchange-traded fund, it is now possible to understand why the bulls opened 55% of their bets at $ 4,500 or more. However, as the October 29 expiration period approached, these call options quickly lost their value.
The October monthly expiration will be a test for the bears because any price above $ 4,000 means a profit of $ 205 million or more for the bulls.
As can be seen above, the bears placed $ 535 million in bets by the October 29 expiration, but it appears to have been caught off guard as 96% of the put options will likely be worthless.
In other words, if the price of Ether sustains above $ 4,100 on Friday’s expiration at 8:00 am UTC, only $ 12 million worth of neutral to bearish put options will come into play.
The bulls have some reasons to keep the price of Ether above $ 4,200
Below are the likely scenarios for the October 29 expiration. The imbalance that favors one side or the other represents the theoretical gain. That is, depending on the expiration price, the number of purchase (call) and sale (put) contracts that will expire varies:
- Between $ 3,900 and $ 4,000: 35,100 call options versus 9,800 put. The net result is USD 100 million in favor of purchase instruments (bullish).
- Between $ 4,000 and $ 4,200: 54,900 call options vs. 3,600 put. The net result is USD 205 million in favor of purchase instruments (bullish).
- Above $ 4,200: 66,300 call options versus 600 put options. The net result is USD 275 million in favor of purchase instruments (bullish).
This gross estimate considers that call options are used exclusively in bullish bets and put options in neutral or bearish operations. However, investors could have implemented more complex strategies that often include different expiration dates.
Bears need a 7% correction to mitigate their losses
In each scenario, the bulls are in absolute control of tomorrow’s expiration Friday and there are good reasons for them to hold the price above $ 4,200. On the other hand, bears need a negative 7% move from the current price to below $ 4,000 to avoid a loss of $ 205 million or more.
However, traders should remember that during bull runs, the effort required for a seller to push the price is immense and often ineffective. Additionally, derivatives data shows considerable short-term call option advantage that is further fueling bullish bets for next week.
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