Traders expect Ethereum price to drop further ahead of Friday’s $550M options expiry

November 18, 2021 Coin Telegraph

Traders expect Ethereum price to drop further ahead of Friday’s 0M options expiry

$550 million in ETH options expire on Nov. 19 and derivatives data suggest bears will apply more downward pressure to Ethereum price.

Ether's (ETH) 330% year-to-date gain has been largely fueled by the growth of decentralized finance and the explosion of non-fungible tokens. Proof of this comes from OpenSea, the largest NFT marketplace, surpassing the impressive mark of $10 billion in accumulated trading volume.

However, traders worry that the 15% correction that followed the $4,870 all-time high on Nov. 10 could indicate that a larger bearish movement is in place. The rupture of the 55-day ascending channel reinforces this thesis and Nov. 19's $550 million Ether options expiry will likely favor bears.

*Ether/USD price on Bitstamp. Source: TradingView*

Ethereum's $86 billion total value locked in smart contract contracts, represents 70% of the market and this metric has increased by 25% over the last two months, signaling that the industry leader was not affected by the network's $50 average gas fees.

*Ethereum network adjusted Total Value Locked (TVL) in USD. Source: Debank.com*

Regulatory uncertainties, especially in the United States, have been eclipsing the cryptocurrency markets' bull-run. For example, on Oct. 18, the New York Attorney General's office gave a "cease and desist" order to two crypto lending platforms operating in the state.

On Nov. 1, the President's Working Group on Financial Markets (PWG) released a report focused on stablecoins' risks to users and financial stability. The report urged Congress to issue a federal prudential framework, invoking the jurisdiction of the SEC and CFTC.

More recently, on Nov. 16, U.S. lawmakers started to fight back against changes to tax reporting rules for cryptocurrency transactions above $10,000 in the newly passed infrastructure bill. A group of congresspeople called for revisions to exclude miners, validators and wallet developers for tax purposes under the Bipartisan Infrastructure Framework (BIF).

Whatever the reason behind the recent Ether price weakness, bulls' excessive optimism on Friday's ETH $550 million options expiry will likely give bears further ammo to pressure down the market.

*Ether options aggregate open interest for Nov. 19. Source: Bybt*

At first sight, the $275 million worth of call (buy) options virtually match the $280 million value in ETH put (sell) instruments. Still, the 0.98 call-to-put ratio is deceptive because some of those prices now seem far-fetched.

For example, if Ether's price remains below $4,400 at 8:00 am UTC on Nov. 19, only 7% out of the call (buy) options will be available at the expiry. So, there is no value in the right to buy Ether at $4,400 if it's trading below that price.

Bears completely dominate Friday's expiry

Below are the four most likely scenarios for the Nov. 19 expiry. The imbalance favoring either side represents the theoretical profit. In other words, depending on the expiry price, the quantity of call (buy) and put (sell) contracts becoming active varies:

Between $4,000 and $4,100: 80 calls vs. 35,100 puts. The net result favors put (bear) instruments by $140 million.
Between $4,100 and $4,200: 340 calls vs. 30,000 puts. The net result favors put (bear) instruments by $120 million.
Between $4,200 and $4,400: 4,840 calls vs. 16,900 puts. The net result is $60 million favoring the put (bear) instruments.
Above $4,400: 7,640 calls vs. 8,700 puts. The net result is even.

This crude estimate considers call (buy) options used in bullish strategies and put (sell) options exclusively in neutral-to-bearish trades. However, a trader could have sold a call option, effectively gaining a negative exposure to Ether above a specific price. Unfortunately, there's no easy way to estimate this effect.

Bears have a clear shot at securing a $140 million profit

Currently, Ether price trades near $4,150, and there are incentives in place for bears to push ETH below $4,100 ahead of Friday's expiry. In that case, their estimated profits reach $140 million.

On the other hand, considering Ether's 12% correction over the past three days, bulls would be more than pleased to take a $60 million loss if the ETH expiry price happens above $4,200.

Avoiding a $140 million loss is the bulls' best-case scenario right now, considering the bearish scenario caused by regulatory uncertainties.

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.

Friday’s $540M Ethereum options expiry favors traders with targets at $5K

November 3, 2021 Coin Telegraph

Friday’s 0M Ethereum options expiry favors traders with targets at K

Coin Telegraph

$540 million in ETH options expire on Friday and data shows bulls have a good chance at securing the $5,000 level.

Ether (ETH) bulls are probably very pleased with the 368% gains accrued so far in 2021 and it seems like not a day passes where the altcoin doesn’t hit a new all-time high.

Even with Ether on the path to $5,000, there are still plenty of concerns about the network's capability to absorb the strong demand coming from the decentralized finance (DeFi) and non-fungible token (NFT) sector.

Another potential setback laying ahead is the United States Treasury report on stablecoin regulation released on Nov 1. The report stressed the necessity of Congress to "ensure appropriate federal prudential oversight on a consistent and comprehensive basis."

In addition to this, competing networks offering interoperability with major DeFi projects have been gaining adoption, both in total value locked (TVL) and market share on smart contracts. As an example, this week Solana (SOL) rallied to a new $236 record high, surpassing Cardano (ADA) to become the fourth-largest cryptocurrency.

According to data from CryptoSlam, secondary sales of Solana NFT markets reached $495 million over the past three months but despite this, the Ethereum blockchain remains the most popular, with NFT secondary sales topping $1.76 billion in October.

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

By managing to stay ahead of the competition and creating a path to solve the scalability problem by migrating to a proof of stake network, Ethereum has lured some heavy investors. This includes Dallas Mavericks owner Mark Cuban, the Houston Firefighters' Relief and Retirement Fund, and billionaire Barry Sternlicht.

The November 5, $540 million Ether options expiry may appear to be an uncontested victory for bulls, but this wasn’t the case a couple weeks ago.

*Ether options aggregate open interest for Nov. 5. Source: Bybt*

At first sight, the $300 billion put (sell) options dominate the weekly expiry by 20% compared to the $240 million calls (buy) instruments. Still, the 0.80 call-to-put ratio is deceptive because the recent rally will likely wipe out most bearish bets.

For example, if Ether's price remains above $4,500 at 8:00 am UTC on Nov 5, only $1.5 million worth of those put (sell) options will be available at the expiry. There is no value in a right to sell Ether at $4,500 if it's trading above that price.

Bulls are comfortable above $4,500

Below are the four most likely scenarios for the $540 million Nov. 5 expiry. The imbalance favoring each side represents the theoretical profit. In other words, depending on the expiry price, the quantity of call (buy) and put (sell) contracts becoming active varies:

Between $4,300 and $4,400: 6,870 calls vs. 6,000 puts. The net result is balanced between bulls and bears.
Between $4,400 and $4,600: 13,750 calls vs. 350 puts. The net result is $60 million favoring the call (bull) instruments.
Between $4,600 and $4,700: 18,500 calls vs. 50 puts. The net result is $85 million favoring the call (bull) instruments.
Above $4,700: 22,800 calls vs. 0 puts. The net result is complete dominance, with bulls profiting $107 million.

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

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

Bears need a 6% price correction to reduce their loss

The only way for bears to avoid loss on Friday's expiry is by pressuring Ether price below $4,400 on Nov. 5, down 6% from the current $4,660. So unless there is some concerning news or events announced before the weekly options deadline, bulls are likely to profit $85 million or higher.

Traders also have to factor in that during bull runs, the amount of effort a seller needs to impact the price is immense and usually ineffective. Currently, options markets data point to a considerable advantage from call (buy) options, fueling bullish bets for Ether and this increases expectations of a rally to $5,000.

Ethereum price options: All $250M in bearish bets for Friday are underwater

October 7, 2021 Coin Telegraph

Ethereum price options: All 0M in bearish bets for Friday are underwater

Citadel

Bears are in deep trouble as ETH bulls are likely to pocket $115 million from Friday's options expiry.

Ether (ETH) has been facing a bearish regression channel since Sept. 1, although it is currently battling to break its resistance.

But despite some headwinds, ETH bulls will likely profit $115 million on Friday's weekly Ether options expiry. The 21% pump over the past week was just enough to make the entire $250 million worth of neutral-to-bearish put options worthless.

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

Regulatory fear limits the upside

Understandably, negative headlines about increasing regulatory scrutiny toward crypto may have subdued prices last month, particularly as China outright banned all cryptocurrency activity in the country.

Major crypto exchanges, including Binance and Huobi, halted most of their services in mainland China, and a couple of the largest Ethereum mining pools were forced to shut down completely.

The negative press followed.

Founder of Citadel Securities, one of the world's biggest market-making firms, said the company does not trade cryptocurrencies due to the sector's regulatory uncertainties. The Russian State Duma Committee on Financial Markets chairman is also talking about ramping up regulations to protect retail investors; and so on.

Based on the negative newsflow, it is possible to understand why bears placed 86% of their bets at $3,200 or lower. However, the past weeks definitively caused those put (sell) options to lose value quickly.

The Oct. 8 expiry will be a strength test for bears because any price above $3,500 means a bloodbath with the absolute dominance of call (buy) options.

*Ether options aggregate open interest for Oct. 8. Source: Bybt*

At first sight, the $250-million neutral-to-bearish instruments dominated the weekly expiry by 16% compared to the $210-million call (buy) options.

However, the call-to-put ratio is deceiving because the recent ETH rally will likely wipe out most of their bearish bets if Ether's price remains above $3,500 at 8:00 am UTC on Friday. There is no value on a right to acquire ETH at $4,000 if it's trading below that price.

Bears should throw the towel and take the $115 million loss

Notably, 94% of the put options, where the buyer holds a right to sell Ether at a pre-established price, were placed at $3,500 or lower. These neutral-to-bearish instruments will become worthless if ETH trades above that price on Friday morning.

Below are the four likeliest scenarios considering the current price levels, as the imbalance favoring either side represents the potential profit from the expiry.

The data shows how many contracts will be available on Friday, depending on the expiry price.

Between $3,100 and $3,300: 14,300 calls vs. 9,800 puts. The net result is somewhat balanced between bulls and bears;
Between $3,300 and $3,500: 21,650 calls vs. 1,900 puts. The net result favors bulls by $66 million;
Between $3,500 and $3,700: 32,050 calls vs. 0 puts. The net result favors bulls by $115 million;
Between $3,700 and $3,900: 43,300 calls vs. 0 puts. Bulls profit increases to $165 million.

This crude estimate considers call (buy) options used in bullish strategies and put (sell) options exclusively in neutral-to-bearish trades. However, this oversimplification disregards more complex investment strategies.

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

There's a $47 million gain from the bear's perspective by pressuring below $3,500, as the above estimate shows. On the other hand, bulls could increase their advantage by $49 million by taking Friday's options expiry price above $3,800.

As things currently stand, bulls have absolute control going into the Oct. 8 expiry, and the incentives for both sides to try pushing the price $200 above or below seem balanced. Therefore, bears should throw the towel and regroup for next week's expiry.

Ethereum bears look to score on Friday’s $340M weekly ETH options expiry

September 30, 2021 Coin Telegraph

Ethereum bears look to score on Friday’s 0M weekly ETH options expiry

Coin Telegraph

Derivatives data shows bears have sufficient incentives to keep ETH price below $3,000 heading into Friday’s $340 million options expiry.

Ether (ETH) price has seen quite a bit of volatility lately and to the surprise of many traders, the $4,000 level continues to present considerable resistance. Currently, the price is respecting the upward channel which started in August but every time the support is tested, the risk of an aggressive correction increases. With that in mind, this Friday's $340 million options expiry will likely be dominated by neutral-to-bearish put options.

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

Bulls placed larger bets for the expiry but it appears that they were too optimistic for Oct. 1, so their $215 million call (buy) options are getting closer to becoming with the looming approach of the expiry date.

It’s possible that Ether could be a victim of its own success because the demand for decentralized finance (DeFi) applications and the minting of non-fungible tokens (NFT) continue to clog the network. This has caused the average gas fee to surpass $20 over the past ten days.

*Largest gas spenders past 24 hours. Source: etherscan.io*

Notice above how OpenSea, the largest NFT marketplace, represents over 20% of the entire Ethereum network’s gas use in the past 24 hours.

When analyzing the incredible demand for blockchain transactions, Polygon's co-founder, Sandeep Nailwal, says it is a matter of time before Ethereum overtakes Bitcoin as the dominant layer-1 protocol.

However, negative news continues to emerge as the fourth-largest Ethereum mining pool will shut down operations in China, citing "regulatory policies." Furthermore, SparkPool, the second-largest Ether mining pool, will also cease operations this month.

As for the $340 million options expiry on Friday, bulls need to push the price above $3,000 to avoid significant bearish pressure.

*Ethereum options aggregate open interest for Oct. 1. Source: Bybt.com*

As noted above, bulls were caught by surprise because the call (buy) instruments were placed at $2,900 or higher. Consequently, if Ether remains below that price on Sept. 17, only $1.4 million worth of neutral-to-bullish call options will be activated on the expiry.

This means that a $3,000 put option becomes worthless if Ether remains below that price at 8:00 am UTC on Oct. 1.

Bulls placed more bets, but there's a catch

The 1.74 call-to-put ratio represents the slight difference between the $215 million worth of call (buy) options versus the $125 million put (sell) options. Although favoring bulls, this broader view needs a more detailed analysis because some of those bets are implausible considering the current $2,800 price.

Below are the four most likely scenarios for Ether price. The imbalance favoring either side represents the theoretical profit from the expiry.

Depending on the expiry price, the quantity of calls (buy) and puts (sell) contracts becoming active varies:

Between $2,400 and $2,500: 0 calls vs. 38,050 puts. The net result is $95 million favoring the protective put (bear) instruments.
Between $2,500 and $2,800: 100 calls vs. 22,300 puts. The net result is $60 million favoring the protective put (bear) instruments.
Between $2,800 and $3,000: 2,300 calls vs. 13,800 puts. The net result is $33 million favoring the protective put (bear) instruments.
Between $3,000 and $3,200: 9,600 calls vs. 6,700 puts. The net result is balanced between bears and bulls.

This raw estimate considers call options being exclusively used in bullish strategies and put options in neutral-to-bearish trades. However, investors might have used more complex strategies that typically involve different expiry dates.

Bulls are wrecked one way or another

Bears have absolute control of Friday's expiry and they have sufficient incentive to keep pressuring the price below $2,800. However, one must consider that during negative price trends, like now for Ether, a seller might cause a 2% negative move by placing large offers and making aggressive sales.

On the other hand, bulls need a 7% positive price swing taking Ether above $3,000 to balance Friday's options expiry. It is impossible to calculate how much a trader needs to spend to drive the market that way, although it seems a colossal task.

If no surprises come before Oct. 1, Ether's price should keep trading below $2,800.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Signs of fear emerge as Ethereum price drops below $3,000 again

September 28, 2021 Coin Telegraph

Signs of fear emerge as Ethereum price drops below ,000 again

Arbitrage

Traders have yet to flip bearish on Ether price, but the recurrent drops below $3,000 increase the likelihood of a sentiment flip.

Technical analysis is a controversial topic, but higher lows are commonly interpreted as a sign of strength. On Sept. 28, Ether (ETH) might be 30% below its May 12 high of $4,380, but the current $3,050 price is 78% higher than the six-month low of $1,700. To understand whether this is a “glass half full” situation, one must analyze how retail and pro traders are positioned according to derivatives markets.

On Sept. 24, Chinese authorities announced new measures to curb crypto adoption, causing the second-largest Ethereum mining pool (Sparkpool) to suspend operations on Sept. 27. According to Sparkpool, the measures are intended to ensure the safety of users’ assets in response to “regulatory policy requirements.”

Binance also announced that it would halt fiat deposits and spot crypto trading for Singapore-based users in accordance with local regulatory requests. Huobi, another leading derivatives and spot exchange in Asia, also announced that it would retire existing Mainland China-based user accounts by year-end.

Pro traders are neutral, but fear is starting to settle in

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

Ether quarterly futures are the preferred instruments of whales and arbitrage desks. Although it might seem complicated for retail traders due to their settlement date and price difference from spot markets, their most significant advantage is the lack of a fluctuating funding rate.

*Ether three-month futures basis rate. Source: Laevitas*

The three-month futures usually trade with a 5% to 15% annualized premium, comparable to the stablecoin lending rate. By postponing settlement, sellers demand a higher price, causing the price difference.

As depicted above, Ether’s dip below $2,800 on Sept. 26 caused the basis rate to test the 5% threshold.

Retail traders usually opt for perpetual contracts (inverse swaps), where a fee is charged every eight hours depending on which side demands more leverage. Thus, to understand if longs are panicking due to the recent newsflow, one must analyze the futures markets’ funding rate.

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

In neutral markets, the funding rate tends to vary from 0% to 0.03% on the positive side. This number is equivalent to 0.6% per week and indicates that longs are the ones paying it.

Between Sept. 1 and 7, a moderate spike in the funding rate took place, but it dissipated as a sudden crypto crash caused $3.54 billion worth of future contracts liquidations. Apart from some short-lived, slightly negative periods, the indicator has held flat ever since.

Both professional traders and retail investors seem unaffected by the recent $2,800 support being tested. However, the situation could quickly revert, and “fear” could emerge if Ether falls below such a price level, which has been holding strong for 52 days.

Altcoin roundup: There’s more to DeFi than just providing liquidity

September 24, 2021 Coin Telegraph

bitcoin options

Bitcoin price is down but crypto investors still have a plethora of yield opportunities thanks to DeFi.

The growth of the decentralized finance (DeFi) sector has been a recurrent headline throughout 2021 and to date, hundreds of billions of dollars in crypto assets are locked on protocols across numerous blockchain networks and earning a yield for their holders.

What started off as a simple Ethereum-based swap interface that allowed ERC-20 tokens to be exchanged in a decentralized manner, called Uniswap, has exploded into a vast ecosystem full of decentralized exchanges, yield farms, lending protocols and staking platforms.

As development continues and older protocols become more established, newer projects have emerged to incorporate more pieces from the traditional financial realm into the DeFi arena as digital technology slowly transforms the global financial system.

Here’s a look at some ways for users to get involved with DeFi outside of simply staking in liquidity pools or depositing to a lending protocol.

Decentralized derivatives trading

Cryptocurrency derivatives exchanges have long been a target for regulators, and once defiant exchanges like BitMEX and Binance have found themselves bending to the will of the law and modifying their operating practices as they seek a more legitimate standing.

This has furthered the necessity for crypto traders to have a decentralized option and led to the creation of protocols like dYdX and Hegic, which offer similar services without the target that is a centralized structure for regulators to come after.

DYdX is a non-custodial perpetuals trading platform built on a layer-two protocol that operates on the Ethereum network and offers users access to up to ten times leverage on futures contracts for more than twenty cryptocurrencies.

Hegic is an on-chain options trading protocol that utilizes hedge contracts and liquidity pools to offer options contracts that last up to 90 days and can payout in Ether (ETH), Wrapped Bitcoin (WBTC) or USD Coin (USDC).

The maximum period of holding options on Hegic has been lowered from 90 to 30 days . All previously acquired options are not affected by this change.

The max. period will be adjusted based on the current volatility in order to protect active LPs from selling vol too cheap. pic.twitter.com/JiVBVH5xD2
— Hegic (@HegicOptions) September 8, 2021

Both of these platforms offer users access to these advanced trading products without the need to divulge their identities, as is required on the centralized counterparts.

Bonding, rebase and ultra-high APY tokens

One topic that is increasingly popping up more in financial discussions is the concept of how to create a decentralized reserve currency that is free of the control of any government or centralized financial institution.

Olympus aims to address this issue through a decentralized autonomous organization (DAO) platform which offers staking and various bond offerings including the ability to bond Ether, MakerDAO (DAI), Liquidity USD (LUSD) and Frax (FRAX).

We just launched our third reserve bond, $LUSD! Welcome @LiquityProtocol to the Olympus Treasury. pic.twitter.com/34IKpTFG5l
— OlympusDAO (@OlympusDAO) September 22, 2021

The bonding process on Olympus is basically a cross between a fixed income product, a futures contract and an option. Bonders are provided with a quote outlining terms for a trade at a future date and include a predetermined amount of the protocol’s native OHM token that the bonder will receive once the vesting period is complete.

Funds that are raised by bond offerings go into the Olympus treasury as collateral to back the OHM tokens that were minted, helping to provide the underlying value behind the OHM token which allows it to be used as a reserve currency or medium of exchange.

The only other projects that have a treasury that provides the underlying value for each token are stablecoins, but as the name implies their price is fixed whereas the price of OHM can increase, offering a new avenue of yield for users.

Once bonding is complete, users can sell their OHM on the open market or stake them on the Olympus protocol for a current yield of 7,299%.

Crowd loan participation on Polkadot and Kusama

Another way crypto holders can put their assets to work while also helping the cryptocurrency ecosystem expand is through participating in the parachain auctions in the Polkadot and Kusama ecosystems through a process known as a crowd loan.

In the auction process, different projects vie for one of the limited parachain slots that connect the project directly to the main Kusma or Polkadot network, facilitating the interconnection of all parachains in the ecosystem.

With crowdloans, users who hold the native KSM and DOT tokens can “contribute” them towards the pool that a project uses to secure a parachain slot, and they will have their tokens returned after a specified lock-up or bonding period that can last for up to one year.

Current #Kusama crowdloan stats:
☛ ~995k $KSM contributed to 16 projects
☛ ~88% (~875k $KSM) contributed to the 5 leading projects which means ~175k $KSM in average so far.
☛ This 88% equals ~78% of KSM contributed to the first 5 parachains.

These auctions are a huge success!
— Fabs (@fabsbags) September 21, 2021

In exchange for their contribution and inability to earn staking rewards for the period that the tokens are locked up, users receive a specified number of tokens for the new protocol which can then be used in the ecosystem or sold on the market.

This approach offers a less risky yield opportunity for token holders, as all principal contributions are locked in a smart contract and returned after the stipulated lock-up period. And by the nature of the parachain auction process, there have been well-developed projects with larger communities that have secured parachain slots, increasing the chance that their tokens will maintain or increase in value as long development for the protocols stays active.

Aside from the threat of regulation, the DeFi ecosystem is showing few signs of slowing its integration of the best parts of the traditional financial system and developing innovative protocols that level the playing field for retail investors.

Want more information about trading and investing in crypto markets?

Three reasons why Polkadot is en-route to a new all-time high even after a 256% rally
Kusama network set to launch its next five parachain auctions
Data shows parabolic-style growth in layer-two-based DeFi and DEX platforms
dYdX exchange releases governance token, making its airdrop worth up to $100K
Coinbase applies to trade crypto futures

Bullish Ethereum traders can place risk-averse bets with this options strategy

August 14, 2021 Coin Telegraph

Coin Telegraph

Traders who believe ETH will reach $5,000 can use this low-risk options strategy to cast a long bullish bet.

Being bullish on Ether (ETH) has paid off recently because the token gained 60% in the last 30 days. The spectacular growth of decentralized finance (DeFi) applications likely fueled inflow from institutional investors, and the recent London hard fork implemented a fee burn mechanism that drastically reduced the daily net issuance.

Although Ether is not yet a fully deflationary asset, the upgrade paved the way for Eth2, and the network is expected to abandon traditional mining and enter the proof-of-stake consensus soon. Ether will then be slightly deflationary as long as fees remain above a certain threshold and the level of network staking.

In light of the recent rally, there are still daily calls for Ether to rally above $5,000, but surely even the most bullish investors know that a 90% rally from the current $3,300 level seems unlikely before year-end.

It would seem more prudent to have a safety net if the cryptocurrency market reacts negatively to the potential regulation coming from the United States Representative Don Beyer of Virginia.

Despite being in its early stages, the "The Digital Asset Market Structure and Investor Protection Act of 2021" proposal seeks to formalize regulatory requirements for all digital assets and digital asset securities under the Bank Secrecy Act, classifying both as "monetary instruments."

Reduce your losses by limiting the upside

Considering the persistent regulatory risks that exist for crypto assets, finding a strategy that maximizes gains up to $5,000 by year-end while also simultaneously limiting losses below $2,500 seems like a prudent and well-aligned decision that would prepare investors for both scenarios.

There's no better way to do this than using the "Iron Condor" options strategy that has been slightly skewed for a bullish outcome.

*Ether options Iron condor skewed strategy returns. Source: Deribit Position Builder*

The call option gives the buyer the right to acquire an asset at a fixed price in the future. For this privilege, the buyer pays an upfront fee known as a premium. Selling a call option, on the other hand, creates a negative exposure to the asset price.

The put option provides its buyer the privilege to sell an asset at a fixed price in the future, a downside protection strategy. Meanwhile, selling this instrument offers exposure to the price upside.

The iron condor basically sells both the call and put options at the same expiry price and date. The above example has been set using the ETH December 31 options at Deribit.

The max profit is 2.5x larger than the potential loss

The buyer would initiate the trade by simultaneously shorting (selling) 0.50 contracts of the $3,520 call and put options. Then, the buyer needs to repeat the procedure for the $4,000 options. To protect from extreme price movements, a protective put at $2,560 has been used. Consequently, 1.47 contracts will be necessary depending on the price paid for the remaining contracts.

Lastly, just in case Ether's price rips above $7,000, the buyer will need to acquire 0.53 call option contracts to limit the strategy's potential loss.

Although the number of contracts on the above example aims for a maximum ETH 0.295 gain and a potential ETH 0.11 loss, most derivatives exchanges accept orders as low as 0.10 contracts.

This strategy yields a net gain if Ether trades between $2,774, which is 10.5% below the current $3,100 price, and $5,830 on December 31.

By using the skewed version of the iron condor, an investor can profit as long as the Ether price increase is lower than 88% by year-end.

London is live and Ethereum bulls control Friday’s $357M ETH options expiry

August 5, 2021 Coin Telegraph

London is live and Ethereum bulls control Friday’s 7M ETH options expiry

Coin Telegraph

$357 million in ETH options expire on August 6 and bears don’t stand a chance given that every neutral-to-bearish put is underwater.

Ether (ETH) price rallied 50% leading in the London hardfork because many investors expect the upgrade to solve the issue of high transaction fees and make the altcoin a deflationary asset.

Pantera Capital CEO Dan Morehead has predicted that the upcoming upgrade would likely cause Ether to 'flip' Bitcoin (BTC) as the leading cryptocurrency but this is a topic under heavy contention.

To understand the impact of the recent price movement, traders should analyze the weekly options expiry. Deribit derivatives currently holds 86% market share in this segment and the aggregate open interest for Aug. 6 currently stands at $357 million.

*ETH Aug. 6 options aggregate open interest. Source: Bybt*

The neutral-to-bullish call (buy) option provides upside price protection to buyers and the protective put (sell) option holders are safeguarded from downside price movements. By measuring each option's price risk exposure, traders can better understand how bullish or bearish traders are positioned.

Options data shows bears were caught by surprise

The initial view shows a reasonably balanced situation because the call-to-put ratio stands at 1.15 which slightly favors the neutral-to-bullish call option by 15%. This indicator reflects the 70,956 call options that are equivalent to a $191 million open interest, stacked against 61,632 put options which reflect $166 million in open interest.

As the chart indicates, bears were not expecting Ether to reach $2,700 and this can be seen where there are no protective put options (pink area) above that strike price.

If Ether remains above this level by Aug. 6 all of those 61,653 contracts will become worthless. This is extremely unusual and reflects just how unexpected the strong upwards price move was.

The bulls' advantage largely depends on Ether at $2,600

While every protective put option becomes worthless above $2,700, part of the neutral-to-bullish call options has been placed at $2,800 and $3,000. This means even if Ether sustains at $2,700, 39% of the call options' $191 million open interest becomes worthless.

At $2,700, the neutral-to-bullish call options have a $116 million advantage. However, if Ether trades below $2,600 at the Aug. 6 expiry, this figure will decrease to $75 million.

Either way, these weekly options largely favor bulls and boost their reserves for additional bets for the upcoming expiries in August. Bears should prepare to lick their wounds and wait for a local top before trying new bearish options trades.

Traders forecast $3K Ethereum price but derivatives data suggests otherwise

July 31, 2021 Coin Telegraph

Traders forecast K Ethereum price but derivatives data suggests otherwise

basis

ETH might have rallied 35% off its $1,750 low but derivatives data shows pro traders are not so bullish.

Ether (ETH) rallied 35% over the past ten days and reclaimed the critical $2,300 support, but the crucial $2,450 local top hasn't been tested since June 17. Part of the recent recovery can be attributed to the London hard fork, which is expected to go live on Aug. 4.

Traders and investors view the EIP-1559 launch as a bullish factor for Ether price because it is expected to reduce gas fees. However, Ether miners are not thrilled with the proposal because the proof-of-work model will no longer be necessary after ETH2.0 goes live.

The network fees will automatically be set, although users can choose to pay extra for faster confirmation. Miners (or validators in the future) will receive this additional fee, but the base fee will be burned. In a nutshell, Ether is expected to become deflationary.

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

While it's difficult to identify the main drivers of the recent rally, it is possible to gauge professional traders' sentiment by analyzing derivatives metrics.

If the recent price move was enough to instill confidence, the futures contracts premium and options skew should clearly reflect this change.

Bullish sentiment is missing even after futures contracts entered contango

By analyzing the price difference between futures contracts and regular spot markets, one can better understand the prevalent sentiment among professional traders.

The 3-month futures should trade with a 6% to 14% annualized premium on neutral to bullish markets, which is in line with stablecoins' lending rate. By postponing settlement, sellers demand a higher price, and this causes the premium.

Whenever the futures premium fades or turns negative, it raises an alarming red flag. This situation is also known as backwardation and indicates that there is bearish sentiment.

*September Ether futures premium at OKEx. Source: TradingView*

The above chart shows that the Ether futures premium flipped negative on July 20 as Ether tested the $1,750 support. However, even the massive rally up to $2,450 wasn't enough to bring the September contract premium above 1.3%, equivalent to 8% annualized.

Had there been some excitement, the annualized futures premium would have been at 12% or higher. Therefore, the stance of professional traders seems neutral right now and is flirting with bearishness.

To exclude externalities exclusive to the futures instrument, traders should also analyze options markets.

Options markets confirm that pro traders are not bullish

Whenever market makers and whales lean bullish, they will demand a higher premium on call (buy) options. This move will cause the 25% delta skew indicator to shift negatively.

On the other hand, whenever the downside protection (put option) is more costly, the 25% delta skew indicator will become positive.

*Ether 1-month options 25% delta skew. Source: laevitas.ch*

Readings between negative 10% and positive 10% are usually deemed neutral. The indicator had been signaling 'fear' between May 20 and July 19 but quickly improved after the $1,750 support held.

Despite this, the current 25% delta skew at negative 4 isn't enough to configure a 'greed' indicator. Options markets pricing is currently well balanced between call (buy) and put (sell) options.

Both derivatives metrics suggest that professional traders gradually exited the 'fear mode' on July 20, but they are nowhere near bullish.

Currently, there is little confidence in the recent rally from these metrics' perspective, which is understandable considering the risks presented by the upcoming hard fork and the uncertainty caused by unsatisfied miners.

Crypto options are turning mainstream

July 10, 2021 Coin Telegraph

bitcoin options

The BTC and ETH options market is still in its infancy, but both retail and institutional demand for cryptocurrencies is already here.

Despite ongoing vaccination efforts and pandemic aid, the world’s economy looks remarkably different than it did over a year ago. The new financial landscape and continued uncertainty have accelerated the shift away from traditional financial institutions.

As the economy attempts to roar into high gear from a standing start, the world of cryptocurrency has taken to the main stage. It has cemented itself as a recognized asset class by major asset managers, investment banks and hedge funds. As the speed of mainstream adoption continues to take the financial world by storm, it is also paving the way for investors to explore a new frontier — crypto options.

What are options?

Options are financial contracts that allow investors to buy or sell the underlying asset, at a set price, at a future date. This allows investors to take directional bets on the price movement of an asset. Investors that expect the asset to appreciate in value can purchase call options from which they will profit if the market price of the asset exceeds the strike price. Contrarily, if they believe the asset will depreciate in value, they can purchase put options, which will bring in profit when the market price of the asset falls below the strike price.

When these conditions are met, investors can choose to exercise their option, requiring the issuer to buy or sell the underlying asset from or to the investor at the strike price. Or, they can simply trade their options to others to realize a profit.

Truth about options

There are several features inherent to options that make them more palatable to investors, especially in a volatile market. With options, investors are able to gain exposure to larger positions at a fraction of the cost. For example, consider buying 100 shares of a stock at $50. In order to be in this position, an investor would need to have $5,000 in capital. With options, however, the cost can be significantly reduced. The same investor can gain the same exposure to a stock or cryptocurrency by buying an option for a fraction of the cost, say with a $150 premium.

Options are a powerful tool in empowering investors to capitalize on the volatility of the markets and enable investors to participate in the markets while freeing up capital, allowing them to diversify their strategy and take on a larger number of positions.

Options also allow investors to gain exposure to the market volatility. Since the price of an option is directly correlated to the market volatility, options tend to get more expensive in a volatile market. Thus, an investor holding a long position in an options contract stands to gain from the market volatility too.

The biggest use case for options, however, is their usage as risk management products. Investors can buy put options (or bet against the market) in order to hedge their portfolio when they are uncertain about market upside. This is like buying insurance on your portfolio in order to protect it from market volatility or down-moves.

Institutional frenzy for options and crypto

As institutional interest continues to grow for the cryptocurrency markets, so has institutional appetite for crypto options. Strategic investors have found refuge in the idea that options allow them to capitalize on the volatility of crypto markets to capture high profits while at the same time keeping them away from higher-risk investments. The volatile nature of crypto markets creates an urgent need for investors to be able to diversify their strategies and hedge their positions while still getting exposure to the upside.

Options markets have given investors a chance to play the field, invest strategically and study the market. Even during what some are calling a bear market, this has kept activity high.

The buck doesn’t stop at institutions

The power that options offer for individuals is being realized by an increasing number of retail investors too, even in the midst of global economic uncertainty. According to Trade Alert, 2020 was a record year for the options market in terms of volume traded, with 7.47 billion contracts traded. This trend continued with conviction into early 2021.

Surprisingly, most of the increase in volume was contributed by retail investors. An article by Barron’s highlighted that options brokers such as Schwab have seen a 116% increase in options being traded. It is estimated that 60% of all options being traded are from retail investors, evidenced by the position size being less than 10 contracts. In fact, the number of single contract trades has doubled in the same time period.

As we progress through 2021, major names such as Goldman Sachs have also announced expanding their crypto presence by offering options trading in Ether (ETH) after seeing huge institutional demand. These products will also apply to their retail customers and are sure to reduce some of the leverage in the system, creating an easy onramp for investors.

Innovations

Today, centralized exchanges are better equipped to handle retail demand for options. They don’t suffer from network congestion experienced on Ethereum, leading to instant execution of trades with lower fees.

That doesn’t rule out the innovations that come with the accelerated rate of decentralized finance. DeFi has disrupted many traditional financial industries, and it is looking to make options more readily available. Decentralized exchanges will play a key role, in the future, in connecting retail investors to options as its ecosystem continues to evolve.

With the economic impact of the global pandemic expected to last until 2025, cryptocurrency markets will, without a doubt, remain volatile. DeFi applications and centralized exchanges are diligently working towards bringing more and more cryptocurrencies to the options market and evolving to simplify complicated trading strategies for investors.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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.

Pankaj Balani has over eight years of experience as a business leader and derivatives trader, and he has dedicated the last two years to building Delta Exchange, a next-generation derivatives exchange where traditional financial instruments and cryptocurrency trading intersect. A UBS alumni, Balani has gained financial, derivatives and quantitative financial experience through his positions at Edelweiss Asset Management and Elara Capital. He graduated from the Indian Institute of Technology in Delhi with a degree in engineering physics and obtained an MBA from the Indian School of Business.

Ethereum Options