Here’s why Ethereum bulls don’t care about Friday’s $40M ETH options expiry

In the last few days Bitcoin (BTC) price rallied within a hair of the $14,000 level and Ether (ETH) followed with a similarly strong performance but the altcoin failed to hold above the $400 physiological support. 

Bitcoin and Ethereum year-to-date performance. Source: Digital Assets Data

Although Ether price is below $400, data show traders are not worried about Friday’s options expiry. Investor optimism has been kept intact despite the recent decentralized finance (DeFi) lackluster performances.

$80 million worth of Ether options are set to expire this Friday, but there has never been a strong argument for October. For starters, this number pales in comparison with the figures for December and March $282 million.

ETH options open interest. Source: Cointelegraph

Even when taking a more granular view, October options are somehow balanced between calls and puts. This data is a sign of an undecided market, which is neither bullish nor bearish when viewed in isolation.

October ETH options. Source: Deribit

As the data above shows, there is roughly the same amount of call (buy) options betting on prices up to $410, as there are put (sell) options eager for lower prices. The scenario gets even more balanced after including OKEx numbers, which favors put (sell) options by 2.5K ETH.

The main reason behind the interest in October options is Ethereum’s upcoming ETH 2.0 upcoming staking launch. For investors willing to open leveraged bets for this event, the odds favor December to March 2021 for an outcome. This rationale is valid both for bulls and bears, therefore greatly diminishing investors appetite for short-term options.

December ETH options. Source: Deribit

By analyzing December’s $200 million in open interest, one will obtain a better sense of how investors are positioning themselves for the upcoming Ethereum network upgrade. Bullish strategies are using this ‘event’ around 62% of these options.

Options pricing have been signaling bullishness

For those unfamiliar with the “delta” mentioned on those charts, this indicator comes from the options Black & Scholes pricing model. It represents the mathematical probability of Ether being above that price on the expiry date according to its volatility. For example, the current options pricing display 33% odds of the price being above $460 on December 25.

Investors then compare calls and put options with similar probabilities. On a balanced market, traders should be demanding roughly the same premium for both options, with a 25% delta (odds).

Whenever the market is unwilling to take downside risk, the indicator shifts negatively. On the other hand, a positive 10% delta skew indicates traders are demanding less premium (risk) for upside protection.

3-month options 25% delta skew. Source: Skew

The above chart shows a relatively steady optimism as the 25% delta skew has been hovering around -11% past two months. Although not excessive, it certainly shows how sentiment has not changed despite the recent failure to sustain a $400 support level.

Top traders are currently net long

To further confirm whether this optimism reflects investors positions, one should analyze the Ether top traders’ long-to-short exchange provided data. By reviewing the top client positions on spot, perpetual and futures contracts, exchanges can obtain a clearer view of whether traders are leaning bullish or bearish.

There are occasional discrepancies in the methodologies used by different exchanges, so viewers should monitor changes instead of absolute figures.

ETH top traders long/short ratio. Source: Huobi and OKEx

As shown by the chart above, there hasn’t been any relevant changes to the exchange’s top trading Ether positions. The decrease seen in Huobi is more than compensated by OKEx’s increasing long exposure. Binance figures were not included as they barely moved from 1.06 earlier this month to the current 1.01 level.

Ultimately, despite the 7% downturn in Ether price since last week and a relatively clear lack of appetite for short-term options, there are no bearishness signals.

This is because the 25% skew options pricing indicator and crypto exchange top traders long-to-short ratios are slightly favoring bulls.

Nevertheless, investors are concentrating their bets on December and March expiries, which seems to make sense as the Ethereum network faces its most massive upgrade ever.

At least, for now, these traders are confident that $400 will act as a support level going forward.bRegardless of what happens during tomorrow’s expiry, one should closely monitor the options 25% delta skew indicator and top traders long-to-short ratio.

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.

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