38% Ethereum futures premium signals traders anticipate $2,500 ETH

April 3, 2021 Coin Telegraph

38% Ethereum futures premium signals traders anticipate ,500 ETH

Futures traders are increasingly bullish on Ether price in the short-term with $2,500 now in play.

Now that Ether's (ETH) price broke the $2,000 level, hitting all-time highs this week, traders became excessively bullish and are expecting more upside in the short-term.

Some analysts believe Visa's initial USD Coin (USDC) stablecoin transaction settlement on the Ethereum network kicked off the most recent rally. Others attribute the current Ether hike to a "triangle market structure" breakout.

Regardless of the cause behind the recent 25% rally, professional traders seem highly optimistic this time around. This conclusion can be reached by looking at the surging futures’ basis, which has reached its highest level ever.

This movement brings increased risks of cascading liquidations due to excessive buyer leverage, but professional traders seem confident, as shown by the delta skew indicator.

*Ether (ETH) price at Coinbase, USD. Source: TradingView*

Investors could be anticipating the protocol improvement proposal EIP-1559 set to go live in July, which aims to fix the surging gas fees. The upgrade intends to use flexible block sizes instead of the current fixed model, and it aims for a network utilization below 50%.

To assess whether professional traders are leaning bullish, one should start by analyzing the futures premium (also known as the basis). This indicator measures the price gap between futures contract prices and the regular spot market.

*OKEx 3-month ETH futures basis. Source: Skew*

The 3-month futures should usually trade with a 10% to 20% annualized premium, comparable to the stablecoin lending rate. By postponing settlement, sellers demand a higher price, causing the price difference.

The basis on Ether futures has matched its all-time high at 38%, indicating that it is costly for the leveraged longs. A basis level above 20% is not necessarily a pre-crash alert, but buyers' overconfidence might pose a risk if the market recedes below $1,750.

It is worth noting that traders sometimes boost their leverage use during a rally but later purchase the underlying asset (Ether) to unwind the risk from futures.

Sometimes the fixed-month contracts’ high leverage is a consequence of perpetual futures aggressive buying by retail traders. Whales, arbitrage desks, and market makers avoid exposure on these contracts due to their variable funding rate.

Options markets are also leaning bullish

To correctly interpret how professional traders are balancing the risks of unexpected market moves, one should turn to the options market.

The 25% delta skew provides a reliable and instant "fear and greed" analysis. This indicator compares similar call (buy) and put (sell) options side by side and will turn negative when the neutral-to-bearish put options premium is higher than similar-risk call options. This situation is usually considered a "fear" scenario, although frequent after solid rallies.

On the other hand, a negative skew translates to a higher cost of upside protection and points toward bullishness.

*Deribit 90-day ETH options 25% delta skew. Source: laevitas.ch*

For the first time since Feb. 5, the options skew indicator is leaning bullish, although it is not far from the negative 10% neutral threshold. Furthermore, the "fear and greed" indicator has continuously improved over the past five weeks.

Part of the reason behind the modest optimism lies in fear of a sharp correction after crossing the $2,000 psychological barrier, similar to the one seen on Feb. 19.

This time around, however, the derivatives markets are healthy, and professional traders appear to be building up positions as Ether marks a new all-time high.

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.

$161M Ethereum options expiry tilts toward bulls as ETH flips $2K to support

April 2, 2021 Coin Telegraph

1M Ethereum options expiry tilts toward bulls as ETH flips K to support

Coin Telegraph

Ethereum price recently made a strong move above $2,000 and derivatives data suggests bulls are preparing to push ETH price higher.

With no short-term solution in sight for the surging network fees, some investors are afraid that Ether (ETH) price could face a correction. The EIP-1559 proposal is set to be bundled with the impending London upgrade, and this will change the gas fee structure, but traders are left to deal with high fees until then.

The flexible block size proposal aims for a more predictable fee pricing model, but this upgrade is scheduled for July, meaning, in the short term, Ether could be subject to price pressure. Adding to this, miners have been expressing concerns as the new proposal aims to burn part of the fees to create scarcity, reducing their income by up to 50%.

To prepare for downside events, professional traders usually buy protective put options without reducing their positions, especially those farming and staking with high yields. Although these are generally costly for longer-term periods, the trades are also offered weekly or bi-weekly at some exchanges.

The put-to-call ratio favors bears, but there's more to it

Unlike futures contracts, options are divided into two segments. Call (buy) options allow the buyer to acquire Ether 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 a protection from negative price swings.

To understand how these competing forces are balanced, one should compare the calls and put options size at each expiry price (strike).

For those unfamiliar with options strategies, Cointelegraph recently explained how to minimize losses despite keeping a bullish position.

*Aggregate Ether April 9 expiry open interest. Source: Bybt*

The above data shows that Ether's April 9 expiry holds 77,800 Ether contracts, worth $161 million at the current $2,070 level. Meanwhile, the call-put ratio favors the more bearish put options by 11%, dominating the strikes below $1,850. Meanwhile, bullish call options have crowded the scene above $1,900.

Despite the imbalance, the net impact leans bullish

Options markets are an all-or-nothing game, meaning they either have value or become worthless if trading above the call strike price, or the opposite for put option holders.

Therefore, by excluding the neutral-to-bearish put options 25% below the current $2,070 price and the call options above $2,480, it is easier to estimate the potential impact of next Friday's expiry. Incentives to pump or dump the price by more than 25% become less likely as the potential gains will seldom surpass the cost.

This selection entices to 33,000 call options from $1,200 to $2,480 strikes, currently worth $68 million. Meanwhile, the more bearish put options down to $1,580, amount to 18,100 Ether contracts worth $37 million. Therefore, buyers have a slight advantage for April 9 expiry.

The balance between call and put options initially showed a call-to-put ratio favoring the more bearish put options. Nevertheless, by excluding the put options 25% below the current price, the net result clearly favors bulls. This reinforces the view that the April 9 expiry should not be deemed bearish.

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.

Bullish traders cast low-risk Ethereum options bets with this clever strategy

March 31, 2021 Coin Telegraph

Coin Telegraph

Risk-averse traders who believe Ethereum is in a bull trend often use the Iron Condor options strategy to limit their downside risk.

Ether (ETH) has been making higher lows throughout 2021, and the current trend indicates that $1,800 might be the bottom for April. Even traders and investors who do not rely on technicals have become optimists after Visa initiated a pilot to settle transactions in USD Coin (USDC) through the Ethereum network.

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

Given that Ether's price is looking like it's ready to pursue new yearly highs, there's a few investment options on the table. Buying and holding is an excellent strategy, as well as a leveraged long position up to 2x. The problem lies on the downside, as a 20% move would result in a 40% loss using futures contracts. Not to mention there is not much room for additional leverage as it requires a considerable upfront.

On the other hand, options strategies provide excellent opportunities for traders who have a fixed-range target. For example, for those expecting a moderate 15% price increase in thirty days, the 'Iron Condor' strategy provides 12% gains with minimal upfront funds required. This strategy also limits the downside to 10%, regardless of how the asset performs.

This bullish strategy consists of buying 10 Ether worth of $1,600 put options while simultaneously selling the same amount of $2,240 calls. To finalize the trade, the buyer will sell 7.5 Ether worth of $2,080 put options and balance it by buying 8 Ether contracts of $2,880 call.

Unlike perpetual futures (inverse swaps), options have a set expiry date, so the expected outcome must happen during the defined period.

The Ether (ETH) calendar option below refers to the April 30 expiry, but this strategy can also be used on Bitcoin (BTC) or applied on a different time frame.

Derivatives exchanges price these contracts in Ether, meaning the displayed profits and losses are calculated by Ether fractions at the expiry date.

*Profit / Loss estimate. Source: Deribit Position Builder*

Considering that Ether is currently trading at $1,810, any outcome between $1,790 and $2,545 (up 40.6%) yields a net gain. For example, a 15% price increase to $2,080 results in a 1.2 ETH net gain, or $2,500.

Meanwhile, this strategy's maximum loss is 1.04 ETH, which will happen if the price on April 30 is below $1,600 (down 12%) or above $2,545.

The Iron Condor strategy allure is the potential 1.2 ETH gain while losses are limited below $1,600 at expiry.

Overall this conservative strategy yields a much better risk-reward compared to leveraged futures trading because of the limited downside. The upfront cost (deposit) is 1.04 ETH, and this also reflects the maximum potential loss.

Pro traders close Ethereum longs even after today’s $1.15B options expiry

March 27, 2021 Coin Telegraph

Pro traders close Ethereum longs even after today’s .15B options expiry

Coin Telegraph

Data shows pro traders who bought the Ethereum price dip below $1,600 are now booking profits even though today’s $1.15 billion options expiry was uneventful.

Ether (ETH) rebounded from a $1,550 low on March 24, which marked a 17% fall from the $1,870 weekly high. Even though the $1.15 billion options expiry in the early hours of March 26 could have pressured Ether price, the continuing surge in gas fees for Ethereum transactions likely played a part.

To better assess these forces, one should analyze top traders' exposure using data provided by the largest crypto exchanges. If the case for the options expiry holds, the long-to-short data from whales and arbitrage desks will show buying activity after the options expiry at 8:00 UTC.

*Ether price at Coinbase, USD. Source: TradingView*

Although the Ether price held relatively stable at $1,630 at the time of the expiry, there needs to be some evidence of top traders reverting the previous price pressure. If this is not the case, then there should be no reason to believe that the recent sell-off was related to the options expiry.

To confront the options-induced price drop theory, a report by CoinMetrics concluded that the highly anticipated EIP-1559 network upgrade is not likely to solve the problem of high gas costs.

The report mentions that only scaling solutions will genuinely fix the problem. Therefore, top traders would have more significant issues to worry about, pressuring Ether price regardless of the expiry date.

Traders did not change their attitude

Major cryptocurrency exchanges provide the long-to-short net positioning. This indicator is calculated by analyzing the client's consolidated position on the spot, perpetual and futures contracts. Therefore, it gives a clearer view of whether professional traders are leaning bullish or bearish.

It is important to note that there are occasional methodology discrepancies between various exchanges, so one should monitor changes instead of absolute figures.

*Exchange's top traders Ether long-to-short ratio. Source: Bybt*

The chart above shows that top traders have been reducing their positions over the past 48 hours, and the movement remained after the options expired (orange bar). These whales and arbitrage desks increased their exposure as Ether price crashed 10% on March 24 and have since been taking profits.

It is worth noting that the 1.56 ratio favoring longs on OKEx was the highest level seen in March, signaling that top traders were confident that the $1,550 support would hold.

Given that this movement took place 36 hours ahead of the options expiry, it weakens the thesis that whales pushed Ether price downward to somehow profit from it.

A similar trend took place at Huobi, where top traders' net long-to-short ratio peaked at 0.96 on March 25. Albeit slightly favoring shorts, the indicator hadn't seen such levels since March 7. Therefore, it further signals that there was no selling pressure targeting the March 26 options expiry.

Thus, any sustainable Ether price rebound, let alone a new all-time high, should occur as Eth2 and sustainable scaling solutions are put into place. Currently, there's no reason to believe that options markets have masqueraded the price.

Ethereum derivatives lean bullish even as ETH price sits at a key support

March 25, 2021 Coin Telegraph

Coin Telegraph

Ether price is trading near a critical support level, but derivatives data suggests pro traders expect more downside in the short term.

Ether (ETH) lost the $1,750 support on March 22, which marked a 7% loss and $230 million worth of futures contract liquidations. It has been holding near the strong support at $1,670, although investors are unwilling to open new long positions despite the price being 11% below the previous week's high.

*Ether price on Coinbase, USD. Source: TradingView*

Binance Chain recently surpassed Ethereum's transaction volume, and this startling growth in unique active wallets certainly played a part in tampering with investors' optimism. The nonfungible token (NFT) frenzy has been driving new projects away from the Ethereum network's high fees.

To further complicate things, multiple decentralized finance (DeFi) protocols are seeking interoperable alternatives, and PancakeSwap, Binance Smart Chain's leading application, was able to amass $4.46 billion in total value locked (TVL).

Meanwhile, Ethereum developers are trying to remedy the Berlin update situation, aiming to reduce transaction costs. The upgrade is expected to go live on April 14, but several industry leaders, including Enjin CEO Maxim Blagov, do not expect a significant impact on the cost per transaction.

Let's take a look at a few derivatives indicators to determine why investors' expectations for Ether have dampened lately.

The futures premium is still bullish

"Basis" is frequently referred to as the futures premium, and it measures the gap between longer-term futures contracts and the current spot market levels.

A 10% to 20% annualized premium (basis) is interpreted as neutral, known as "contango." This price difference reflects the arbitrage opportunity cost, usually stablecoin staking rates.

On the other hand, whenever this indicator fades or turns negative, it indicates that the market is quickly turning bearish.

*OKEx 3-month Ether futures basis. Source: Skew*

The above chart shows that the indicator recently peaked at 32% on March 20, indicating extreme leverage being used by buyers. As Ether's price dropped, the futures basis reverted to a slightly bullish 23% level.

Considering the 10% price drop since the $1,850 peak on March 20, the futures premium remaining healthy is a bullish indicator.

The options skew has been neutral since Feb. 5

Although futures markets have been bullish over the past two weeks, options traders are uncomfortable offering downside protection. Call options allow the buyer to acquire Ether at a fixed price on contract expiry. On the other hand, put options provide insurance for buyers and protect against price drops.

Whenever market makers and professional traders are leaning bearish, they demand a higher premium on put (sell) options. This trend causes a positive 25% delta skew indicator.

*Deribit BTC options 25% delta skew. Source: Laevitas*

A skew indicator between -10 and +10 is deemed neutral, which has been the case since Feb. 5. This is evidence of a balanced risk assessment from whales and market makers between downside and upside risk.

Thus, there is no evidence that options traders are bullish, in contrast with ETH futures markets.

This data is not worrisome, considering that Ether has gained 74% in 2021. After strong rallies, it is natural for traders to seek protection from eventual price adjustments.

The $1,670 support seems to be holding, but it would also not be surprising if Ether tested lower levels before rebounding to retake the critical $1,800 psychological barrier.

ETH Options