Ahead of this week’s $800 million ETH options expiry, overconfident Ethereum options traders are cautiously watching the $3,200 level.
On Friday, Aug. 27, Ether (ETH) will see its $820 million monthly options expire. Even if bulls appear to have wasted a golden opportunity to dominate the expiry because they were overly excited about Ether’s price potential, that will be the first time that $3,000 and higher options will have a serious fighting chance.
It’s unknown why $140 million of neutral-to-bullish call options were placed between $3,800 and $8,000, but when the monthly expiry approaches, these instruments will most certainly become worthless.
Competition and the success of interoperability-focused protocols impact Ether price
The Ethereum network has struggled as a result of its own popularity, which has resulted in network congestion and transaction costs of up to $20. In addition, the growth of nonfungible coins and decentralized finance added to the network’s stress.
Perhaps some of the influx that was expected to push Ether’s price higher went to its competitors, who have recently put in excellent performances. Cardano (ADA), for example, has risen over 100% year-to-date as investors anticipate the debut of its long-awaited smart contracts on Sept. 12.
According to CoinShares’ “Digital Asset Fund Flows Weekly,” Solana (SOL), another smart contract contender, garnered one-third of inflows to crypto investment products during the last week.
Finally, after successfully incorporating DeFi projects into its interoperability pool and building a decentralized autonomous organization (DAO) to scale projects on the software development kits, layer-two scaling solutions like Polygon (MATIC) have witnessed 150 percent growth.
Notice how the $3,000 level vastly dominates Friday’s expiry with 30,900 ETH option contracts, representing a $100 million open interest.
The initial call-to-put analysis shows a slight prevalence of the neutral-to-bullish call instruments, with 13% larger open interest. However, bears seem to have been taken by surprise because 83% of their bets have been placed at $2,900 or lower.
To succeed, bears need to push and hold Ether price below $2,900
Nearly half of the neutral-to-bullish call options have expiry prices set at $3,500 or higher. These instruments will become worthless if Ether trades below that price on Friday. The options expiry happens at 8:00 am UTC, so traders might expect some price volatility nearing the event.
Below are the three most likely scenarios that will likely happen and their estimated gross result. Keep in mind that some investors could be trading more complex strategies, including market-neutral ones that use calls and protective puts. Consequently, this estimation is somewhat rudimentary.
The simplistic analysis weighs the call (buy) options against the put (sell) options available at each strike level. So, for example, if Ether’s expiry happens at $3,050, every neutral-to-bullish call option above $3,000 becomes worthless.
- Below $2,900: 36,360 calls vs. 32,700 puts. The net result is virtually balanced.
- Between $2,900 and $3,000: 36,770 calls vs. 20,320 puts. The net result favors the neutral-to-bullish instruments by $48 million.
- Between $3,000 and $3,200: 55,660 calls vs. 8,320 puts. The net result favors the neutral-to-bullish instruments by $147 million.
- Above $3,200: 62,260 calls vs. 1,490 puts. The net result favors the neutral-to-bullish instruments by $197 million.
Bears will try to minimize the damage, and luckily for them, the honeypot for a favorable price move doesn’t look worthwhile of a significant effort from bulls.
As for the excessively optimistic options traders, they should better rethink their strategy for the September expiry. The Ethereum network seems to be its own biggest enemy because the increasing adoption has fueled the rise in competitors’ decentralized finance applications.