- March 24, 2022
- Posted by: Bogdan
- Category: BlackRock, deribit, expiry, inflation, Markets, options
Ether (ETH) bulls have a few good reasons to celebrate the 20% gain between March 14 and March 24. The price increase surprised many and led to the first daily close above $3,000 in 34 days.
Even with this move, Friday’s $2.4 billion Ether options expiry is somewhat uncertain because bears can easily profit by pushing the price below $3,000.
In a letter to shareholders, Larry Fink, the CEO of BlackRock, the world’s largest asset manager, noted that the global socio-political crisis and growing inflation could make way for a global digital payment network.
Moreover, cryptocurrency investors turned bullish after Terra co-founder Do Kwon reconfirmed plans for a giant $10-billion BTC allocation. On March 24, a third tranche of Tether (USDT) left a wallet thought to hold funds earmarked to purchase Bitcoin.
On the macroeconomic side, there have been mixed feelings. For example, retail sales in Canada grew 3.2% over the last month which is above the 2.4% market expectation. On the other hand, the United Kingdom’s Consumer Price Index came at 6.2% year over year, while expectations stood at 5.9%.
Bulls expected a miracle, and it did not happen
Ether’s recent strength might have come as a surprise for many, but some bulls were definitely over-optimistic. Even though the call (buy) option instruments dominate the March 25 options expiry, overconfident bulls placed bets at $5,000 and higher.
A broader view using the call-to-put ratio shows a 178% advantage to Ether bulls as the $1.76 billion call (buy) instruments have a larger open interest versus the $630 million put (sell) options. However, the 2.78 call-to-put indicator is deceptive because most bullish bets will become worthless.
For example, if Ether’s price remains below $3,100 at 8:00 am UTC on March 25, only 10% of the call (buy) options will be available. That effect happens because there is no value in the right to buy Ether at $3,300 if it’s trading below that level.
Bears are better positioned despite having smaller numbers
Below are the three most likely scenarios based on the current price action. The number of options contracts available on March 25 for bulls (call) and bear (put) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:
- Between $2,800 and $3,000: 27,500 calls vs. 37,500 puts. The net result is $25 million favoring the put (bear) instruments.
- Between $3,000 and $3,200: 64,000 calls vs. 16,500 puts. The net result favors bulls by $140 million.
- Between $3,200 and $3,300: 88,000 calls vs. 15,500 puts. The net result favors the call (bull) instruments by $240 million.
This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.
For instance, a trader could have sold a call option, effectively gaining a positive exposure to Ether above a specific price. But unfortunately, there’s no easy way to estimate this effect.
Sub-$3,000 Ether would benefit bears
Ether bears need a small dump below $3,000 to avoid a $140 million loss on Friday. On the other hand, the bulls’ best case scenario requires a 4% price increase from the current $3,100 to score a $240 million profit.
Ether bears seem in a worse position considering Larry Fink’s positive remarks and the positive Bitcoin momentum triggered by Luna’s potential $3 billion BTC acquisition. The most likely outcome is that bulls will continue to display strength by pushing the price to $3,200 or higher as the March 25 options expiry approaches.
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.