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Ethereum price soars on spot ETF rumor — How are ETH options markets positioned?

May 21, 2024 Coin Telegraph

approval

Ethereum price soared to a 2-month high at $3,700 today as analysts significantly boosted their expectation that a spot ETH ETF could be approved.

On May 20, the price of Ether (ETH) surged over 18% after Eric Balchunas, a senior analyst at Bloomberg, raised the approval odds for the Ethereum exchange-traded fund (ETF) from 25% to 75%. Balchunas noted that the United States Securities and Exchange Commission likely faced political pressure, as their previous position showed little engagement with ETF applicants.

Balchunas further mentioned that the SEC is reportedly asking exchanges like the NYSE and Nasdaq to update their filings, although there has been no official confirmation from the regulator. Nonetheless, Nate Geraci, co-founder of the ETF Institute and president of the ETF Store, stated that the final decision is still pending regarding the registration requirement for individual funds (S-1s).

According to Geraci, the SEC could approve the exchange rule changes (19b-4s) separately from the fund’s registration (S-1), which could technically be delayed beyond the May 23 deadline for VanEck’s Ethereum spot ETF request. This allows the regulator additional time to review and approve these documents, considering the complexities and risks associated with structures involving Proof-of-Stake (PoS) cryptocurrencies.

Bitcoin options tantalizing bears to push price below $30K before Friday’s expiry

July 20, 2023 Coin Telegraph

Bitcoin options tantalizing bears to push price below K before Friday’s expiry

Bitcoin Price

Bitcoin bears are closing in on a rare win, as they have the advantage in this week’s $600 million BTC options expiry.

This week’s Bitcoin (BTC) options expiry on Friday, July 21, could solidify the $30,000 resistance level and give the bears the upper hand for the first time since the 21% rally between June 14 and June 21.

Bitcoin options expiries coincide with volatility

A review of Bitcoin’s recent price action shows that three out of the last four BTC options expiries triggered significant price movements, making it crucial for traders to pay close attention to these events.

*Bitcoin/USD price index, 4-hour. Source: TradingView*

Notably, Bitcoin’s price has consistently shown strong reactions following the weekly 8:00 am UTC options expiry. While causation cannot be established, the magnitude of these price swings warrants extreme caution leading up to the weekly expiry on July 21.

Bitcoin bears benefit from stricter regulations

While this week’s options expiry could give bears control of Bitcoin’s price in the short term, bulls have the potential advantage of the United States Securities and Exchange Commission reviewing spot exchange-traded fund proposals.

Although these proposals are still in the early stages of regulatory scrutiny, the slow progression could partially explain why the bears have managed to defend $31,000 multiple times since late June.

However, their best chance of keeping Bitcoin’s price below $30,000 lies in the worsening regulatory environment. On July 19, the global securities exchange Nasdaq suspended the launch of its cryptocurrency custodian solution due to a lack of regulatory clarity in the United States. This change of plans was justified by Nasdaq’s CEO, Adena Friedman.

Furthermore, on July 14, cryptocurrency exchange Coinbase announced the suspension of its staking services for clients in California, New Jersey, South Carolina and Wisconsin. This decision followed a June 6 lawsuit from the SEC that accused the exchange of operating as an unregistered security broker since 2019.

Bitcoin bulls’ overoptimism leads to a disappointing outcome

Bitcoin’s price briefly surpassed $31,000 on July 13 and July 14, fueling bullish bets by traders using options contracts. However, a four-hour correction brought the price back down to $30,000.

*Deribit Bitcoin options aggregate open interest for July 21. Source: Deribit*

The 0.39 put-to-call ratio reflects the difference in open interest between the $430 million call (buy) options and the $170 million put (sell) options. However, the outcome will be lower than the $600 million total open interest since the bulls were overconfident.

For example, if Bitcoin’s price trades at $30,500 at 8:00 am UTC on July 14, only $18 million worth of call options will be accounted for. This distinction arises from the fact that the right to purchase Bitcoin at $31,000 or $32,000 becomes invalid if BTC trades below those levels upon expiration.

Below are the three most likely scenarios based on the current price action. The number of options contracts available on July 21 for call (buy) and put (sell) instruments varies depending on the expiration price. The imbalance favoring each side constitutes the theoretical profit:

Between $28,000 and $30,000: 100 calls vs. 2,400 puts. The net result favors the put (sell) instruments by $70 million.
Between $30,000 and $31,000: 600 calls vs. 1,800 puts. The net result favors the put (sell) instruments by $35 million.
Between $31,000 and $32,000: 3,100 calls vs. 1,400 puts. The net result favors the call (buy) instruments by $55 million.

Considering the recent weak macroeconomic indicators, it’s likely that bears will continue suppressing Bitcoin’s price until Friday’s expiry. Moreover, China’s second-quarter gross domestic product grew by 6.3% year-on-year, falling short of the 7.3% market expectation. Meanwhile, U.S. retail sales in June increased by 0.2% from the previous month, below the 0.50% consensus.

Consequently, the bulls find themselves in a challenging position, as their call (buy) instruments will be invalidated if Bitcoin’s expiry price falls below $30,000. Therefore, the bears’ $35 million favorable outcome may not be a significant win, but it does increase the chances of $30,000 becoming a new resistance area.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Arrested Bitzlato Exchange Founder Seeks Help From Crypto Community

March 26, 2023 Bitcoin.com

Chair of EU Parliament’s Committee on Budgets Calls for Crypto Ban Amid Banking Turmoil

March 19, 2023 Bitcoin.com

Bitcoin bulls need to reclaim $41K ahead of Friday’s $615M BTC options expiry

April 14, 2022 Coin Telegraph

Bitcoin bulls need to reclaim K ahead of Friday’s 5M BTC options expiry

Call

BTC staged a small relief rally, but securing $41,000 is the key to determining whether or not the current sell-off has ended.

Over the past three months, Bitcoin's (BTC) daily closing price fluctuated between $35,050 and $47,550, which is a 35.7% range. Although it might seem excessive, this is not unusual, especially considering BTC’s 68% historical annualized volatility.

*Bitcoin/USD 1-day chart at Coinbase. Source: TradingView*

The relief rally that came after the April 11 dip below $40,000 followed the U.S. Consumer Price Index (CPI) report that announced 8.5% for March, the highest since 1981. Meanwhile, in the United Kingdom, the CPI jumped to 7%, a 30-year high.

For these reasons, cryptocurrency traders are increasingly concerned about the ability of the U.S. Federal Reserve rate hikes expected throughout 2022 to contain inflationary pressure. If the global economies enter a recession, investors will likely move away from risk-on asset classes like cryptocurrencies.

Moreover, the Bitcoin price correction was costly to leverage traders because the aggregate liquidations reached $428 million at derivatives exchanges.

Bulls placed their bets at $50,000 and above

The open interest for the April 15 options expiry in Bitcoin is $615 million, but the actual figure will be much lower since bulls were overly-optimistic. These traders might have been fooled by the short-lived pump to $48,000 on March 28 because their bets for April 15's options expiry extend beyond $50,000.

Bitcoin's recent downturn below $41,000 took bulls by surprise and only 18% of the call (buy) options for April 15 have been placed below that price level.

*Bitcoin options aggregate open interest for April 15. Source: CoinGlass*

The 1.21 call-to-put ratio shows the dominance of the $335 million call (buy) open interest against the $280 million put (sell) options. Nevertheless, as Bitcoin stands near $41,000, most bullish bets are likely to become worthless.

If Bitcoin's price remains below $42,000 at 8:00 am UTC on April 15, only $62 million worth of these call options will be available. This difference happens because a right to buy Bitcoin at $42,000 is worthless if BTC trades below that level on expiry.

Bulls aim for $43,000 to balance the scales

Below are the four most likely scenarios based on the current price action. The number of options contracts available on April 15 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $39,000 and $41,000: 950 calls vs. 5,400 puts. The net result favors the put (bear) instruments by $180 million.
Between $41,000 and $42,000: 1,500 calls vs. 3,950 puts. The net result favors bears by $100 million.
Between $42,000 and $43,000: 1,850 calls vs. 3,300 puts. The net result favors the put (bear) instruments by $60 million.
Between $43,000 and $45,000: 2,700 calls vs. 2,800 puts. The net result is balanced between call (buy) and put (sell) options.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification disregards more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately, there's no easy way to estimate this effect.

Bears will try to pin BTC below $41,000

Bitcoin bears need to pressure the price below $41,000 on April 15 to secure a $180 million profit. On the other hand, the bulls' best case scenario requires a push above $43,000 to neutralize any impact.

Bitcoin bulls had $180 million leverage long positions liquidated on April 10 and April 11, so they should have less margin than is required to drive the price higher. With this said, bears will undoubtedly try to suppress BTC below $41,000 ahead of the April 15 options expiry.

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.

Here’s a clever options strategy for cautiously optimistic Bitcoin traders

March 1, 2022 Coin Telegraph

Call

Pro traders often use the risk reversal options strategy to hedge their bets and profit in the case of an unexpected rally.

Bitcoin (BTC) entered an upward channel in early January and despite the sideways trading near $40,000, order book analysts cited "significant buying pressure" and noted that the overall negative sentiment might be heading towards exhaustion.

*Bitcoin/USD price at FTX. Source: TradingView*

Independent analyst Johal Miles noted that BTC's price formed a bullish hammer candlestick on its daily chart on Jan. 24 and Feb. 24, hinting that the longer-term downtrend is close to an end.

However, the rally above $41,000 on Feb. 28 was unable to create strong demand from Asia-based traders, as depicted by the lack of a China-based peer-to-peer Tether (USDT) premium versus the the official U.S. dollar currency.

Currently, there is positive news coming from the potential adoption of crypto by global e-commerce marketplace eBay. On Feb. 27, CEO Jamie Iannone revealed that the tech giant is looking to transition to new payment modes for part of its $85 billion in direct annual volume that is transacted on the platform.

Bitcoin bulls also have a strong case to leave room for upside price surprises if the European Commission plans to isolate Russia from the international SWIFT cross-border payment network system.

In addition to cutting off Russia from SWIFT, the European Commission will "paralyze the assets of Russia's central bank." Whether or not intended, this showcases Bitcoin's decentralization benefits as an uncensorable means of exchange and a store of value.

The risk reversal strategy fits the current scenario

Albeit the popular belief that futures and options are widely used for gambling and excessive leverage, the instruments were actually designed for hedge (protection).

Options trading presents opportunities for investors to profit from increased volatility or obtain protection from sharp price drops and these complex investment strategies involving more than one instrument are known as options structures.

Traders can use the "risk reversal" options strategy to hedge losses from unexpected price swings. The investor benefits from being long on the call options, but pays for those by selling the put. Basically, this setup eliminates the risk of the stock trading sideways but does come with substantial risk if the asset trades down.

*Profit and loss estimate. Source: Deribit Position Builder*

The above trade focuses exclusively on Mar. 31 options, but investors will find similar patterns using different maturities. Bitcoin was trading at $41,767 when the pricing took place.

First, the trader needs to buy protection from a downside move by buying 2 BTC puts (sell) $34,000 options contracts. Then, the trader will sell 1.8 BTC put (sell) $38,000 options contracts to net the returns above this level. Finally, buying 3 call (buy) $52,000 options contracts for positive price exposure.

Investors are protected from a price drop to $38,000

That options structure results in neither a gain or a loss between $38,000 (down 9%) and $52,000 (up 24.5%). Thus, the investor is betting that Bitcoin's price on Mar. 31 at 8:00 am UTC will be above that range while gaining exposure to unlimited profits and a maximum 0.214 BTC loss.

If Bitcoin price rallies toward $56,000 (up 34%), this investment would result in a 0.214 BTC gain. Even though there is no cost associated with this options structure, the exchange will require a margin deposit to cover potential losses.

Risk-averse Ethereum traders use this options strategy to increase exposure to ETH

October 2, 2021 Coin Telegraph

Call

The Iron Condor options strategy gives risk-averse traders a safer way to profit from a potential $3,400 to $5,400 ETH price.

On Oct. 1, the cryptocurrency market experienced a 9.5% pump that drove Bitcoin (BTC) and Ether (ETH) to their highest levels in 12 days. A variety of reasons have been attributed to the price move, including the U.S. consumer price index, exchanges' diminishing supply, and a "cup and handle" bullish continuation chart formation.

Traders are not likely to find an explanation for the sudden move, apart from investors regaining confidence after the Sept. 19 drop was attributed to contagion fears from China-based property developer Evergrande.

The Ethereum network has been facing some criticism due to the $20 or higher transaction costs caused by the nonfungible token (NFT) sales and decentralized finance (DeFi) activity. Cross-chain bridges connecting Ethereum to proof-of-stake (PoS) networks have been partially solving this issue, and Friday's Umbrella network oracle service launch shows just how fast interoperability is advancing.

It is also worth noting that China's announced even stricter rules last week had a positive impact on the volumes seen at Decentralized exchanges (DEX). Centralized crypto exchanges, including Huobi and Binance, announced service suspension for Chinese residents, and a significant outflow of coins followed this. At the same time, this increased movement on Uniswap and the decentralized derivatives exchange dYdX.

Even with all this volatility, there are still reasons for investors' year-end bullishness on Ether. At the same time, the limitations imposed by Ethereum layer-1 scaling also caused some of its competitors to present significant gains over the past couple of months.

*ETH price vs. AVAX, SOL, ATOM. Source: TradingView*

Notice how Ether's 58% positive performance in three months has been significantly below those emerging Proof-of-Stake (PoS) solutions offering smart contract capabilities and interoperability.

For bullish traders who think Ether price will break to the upside but are unwilling to face the liquidation risks imposed by futures contracts, the "long condor with call options" strategy might yield more optimal results.

Let's take a closer look at the strategy.

Options are a safer bet for avoiding liquidations

Options markets provide more flexibility to develop custom strategies and there are two instruments available. The call option gives the buyer upside price protection, and the protective put option does the opposite. Traders can also sell the derivatives to create unlimited negative exposure, which is similar to a futures contract.

*Ether options strategy returns. Source: Deribit Position Builder*

This long condor strategy has been set for the Dec. 31 expiry and uses a slightly bullish range. The same basic structure can also be applied for other periods or price ranges, although the contract quantities might need some adjustment.

Ether was trading at $3,300 when the pricing took place, but a similar result can be achieved starting from any price level.

The first trade requires buying 0.50 contracts of the $3,200 call options to create positive exposure above this price level. Then, to limit gains above $3,840, the trader needs to sell 0.42 ETH call option contracts. To further limit gains above $5,000, another 0.70 call option contracts should be sold.

To complete the strategy, the trader needs upside protection above $5,500 by buying 0.64 call option contracts if Ether price skyrockets.

The 1.65 to 1 risk-reward ratio is moderately bullish

The strategy might sound complicated to execute, but the margin required is only 0.0314 ETH, which is also the max loss. The potential net profit happens if Ether trades between $3,420 (up 3.6%) and $5,390 (up 63.3%).

Traders should remember that it is also possible to close the position ahead of the Dec. 31 expiry if there's enough liquidity. The max net gain occurs between $3,840 and $5,000 at 0.0513 ETH, which is 65% higher than the potential loss.

With over 90 days until the expiry date, this strategy gives the holder peace of mind because there is no liquidation risk like futures trading.

Bears apply the pressure as Bitcoin price revisits the $41K ‘falling knife’ zone

September 28, 2021 Coin Telegraph

Bears apply the pressure as Bitcoin price revisits the K ‘falling knife’ zone

bitcoin options

Bitcoin traders say $43,600 needs to be regained to restore the bullish uptrend, but BTC futures and options data are showing signs of distress.

"Don't fight the trend" is an old saying in the markets, and there are other variants of the phrase like "never catch a falling knife." The bottom line is that traders should not try to anticipate trend reversals, or even worse, try to improve their average price while losing money.

It really doesn't matter whether one is trading soy futures, silver, stocks or cryptocurrencies. Markets generally move in cycles, which can last from a few days to a couple of years. In Bitcoin's (BTC) case, it's hard for anyone to justify a bullish case by looking at the chart below.

*Bitcoin price in USD at Coinbase. Source: TradingView*

Over the past 25 days, every attempt to break the descending channel has been abruptly interrupted. Curiously, the trend points to sub-$40,000 by mid-October, which happens to be the deadline for the United States Securities and Exchange Commission decision on the ProShares Bitcoin ETF (Oct. 18) and Invesco Bitcoin ETF (Oct. 19).

According to the CoinShares weekly report, the recent price action triggered institutional investors to enter the sixth consecutive week of inflows. There has been nearly $100 million worth of inflows between Sept. 20 and 24.

Experienced traders claim that Bitcoin needs to reclaim the $43,600 support for the bullish trend to resume. Meanwhile, on-chain data points to heavy accumulation, as the falling exchange supply has been dominant.

Perpetual futures show traders neutral to bearish

To gauge investor sentiment, one should analyze the funding rate on perpetual contracts because these are retail traders' preferred instruments. Unlike monthly contracts, perpetual futures (inverse swaps) trade at a very similar price to regular spot exchanges.

The funding rate is automatically charged every eight hours from longs (buyers) when demanding more leverage. However, when the situation is reversed, and shorts (sellers) are over-leveraged, the funding rate turns negative, and they become the ones paying the fee.

*Bitcoin perpetual futures 8-hour funding rate. Source: Bybt.com*

A 'neutral' situation involves leverage longs paying a small fee, oscillating from 0% to 0.03% per eight-hour period, which is equivalent to 0.6% per week. Yet, the above chart shows a slightly bearish trend since Sept. 13, when the funding rate was last seen above the 0.03% threshold.

The put-to-call ratio favors bulls, but the trend has changed

Unlike futures contracts, options are divided into two segments. Call (buy) options allow the buyer to acquire Bitcoin at a fixed price on the expiry date. Generally speaking, these are used on either neutral arbitrage trades or bullish strategies.

Meanwhile, the put (sell) options are commonly used as protection from negative price swings.

To understand how these competing forces are balanced, one should compare the calls and put options open interest.

*Bitcoin options open interest put-to-call ratio. Source: Laevitas.ch*

The indicator reached a 0.47 bottom on Aug. 29, reflecting the 50,000 BTC protective puts stacked against the 104k BTC call (buy) options. Still, the gap has been decreasing as the use of neutral-to-bearish put contracts started to get traction after the Sept. 24 monthly expiry.

According to Bitcoin futures and options markets, it might seem premature to call a 'bearish' period, but the last two weeks show absolutely no signs of bullishness from derivatives indicators. It appears that bulls' hope clings on to the ETF deadline acting as a trigger to break the current market structure.

How relevant is the $900M open interest on Bitcoin options above $100K?

May 31, 2021 Coin Telegraph

How relevant is the 0M open interest on Bitcoin options above 0K?

Bitcoin Price

Pro traders have been buying ultra bullish Bitcoin $100,000 to $200,000 options, but how confident are they that these targets will be achieved?

Bitcoin (BTC) is fast approaching its worst monthly performance in a decade, but some investors are using this as an opportunity to buy ultra-bullish long-term derivatives. There are currently over $900 million in call (buy) options aiming at $100,000 and higher, but what exactly are those investors seeking?

Options instruments can be used for multiple strategies, which include hedging (protection) and also aiding those betting on specific outcomes. For example, a trader could be expecting a period of lower volatility in the short-term, but at the same time, some significant price oscillation towards the end of 2021.

Most novice traders fail to grasp that an investor might sell an ultra-bullish call (buy) option for September to improve gains on a short-term strategy, therefore not expecting to carry it until the expiry date.

*Bitcoin option profit/loss estimate. Source: Deribit Position Builder*

The chart above shows the net result of selling a Bitcoin $40,000 July 30 put. If the price remains above that threshold, the investor scores 0.189 BTC gain. Meanwhile, any outcome below $33,700 will yield a negative result. For example, at $30,000, the net loss is 0.144 BTC.

The same trade will occur in the example shown below, but the investor will also sell 40 contracts of the $140,000 call option for Sept. 24. The investor is letting go of gains from a potential price increase in exchange for higher net profit at present levels.

Take notice of how the same $40,000 outcome now results in a 0.464 BTC gain, and any price level above $26,850 yields a positive result. However, due to ultra-bullish calls, the trade will also net negative outcomes if Bitcoin trades above $68,170 on July 30.

Therefore, analyzing those ultra-bullish options separately doesn't always provide a clear picture of investors' intentions.

*Aggregate Bitcoin options open interest: Source: Bybt*

There are currently 24,625 Bitcoin call option contracts at $100,000 or higher, equivalent to $910 million in open interest.

Sure, it sounds like a lot, but the current market value of these ultra-bullish options is $15.4 million. For example, a Dec. 31 call option with a $120,000 strike is worth $1,500.

As a comparison, a $30,000 protective put option for July 30 is worth $2,700. Therefore, instead of focusing exclusively on open interest, one should factor in the actual cost for each option.

While these flashy $300,000 Bitcoin call options make headlines, it does not necessarily reflect true investors' expectations.

For Bitcoin holders, it makes sense to sell $100,000 and higher call options and pocket the premium. Worst case scenario, one will be making a sale in December at $100,000, which does not sound like a bad investment at all.

Bitcoin options expiries coincide with volatility

Bitcoin bears benefit from stricter regulations

Bitcoin bulls’ overoptimism leads to a disappointing outcome

Bulls placed their bets at $50,000 and above

Bulls aim for $43,000 to balance the scales

Bears will try to pin BTC below $41,000

The risk reversal strategy fits the current scenario

Investors are protected from a price drop to $38,000

Options are a safer bet for avoiding liquidations

The 1.65 to 1 risk-reward ratio is moderately bullish

Perpetual futures show traders neutral to bearish

The put-to-call ratio favors bulls, but the trend has changed

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