put

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.

Bitcoin bulls aim to hold this week’s BTC gains leading into Friday’s $675M options expiry

February 16, 2023 Coin Telegraph

Bitcoin bulls aim to hold this week’s BTC gains leading into Friday’s 5M options expiry

BUSD

$675 million in BTC options are set to expire on Feb. 17, but bears could aim to take control by pushing Bitcoin price below $22,000.

While the U.S. Federal Reserve (FED) continues to monitor the overheated economy, the most likely scenario is further interest rate hikes to curb inflation. The unintended consequence is the heightened government debt cost, creating a bullish environment for scarce assets such as commodities, stock market and cryptocurrencies.

Bitcoin’s price gain practically extinguished bears expectation for a sub-$21,500 options expiry on Feb. 17, so their bets are unlikely to pay off as the deadline approaches.

Bitcoin investors' primary concern is the possibility of further impacts from regulators following the staking rewards program by the Kraken exchange being halted by the U.S. Securities and Exchange Commission on Feb. 9 and the crackdown on Binance USD (BUSD) stablecoin issuing on Feb. 13.

Even if the newsflow remains negative, bulls still can profit in Friday's Feb. 17 options expiry by keeping the BTC price above $22,500, but the situation can easily flip and favor bears.

Bears were not expecting the $22,000 level to hold

The open interest for the Feb. 17 options expiry is $675 million, but the actual figure will be lower since bears were expecting sub-$22,000 price levels. These traders became overconfident after Bitcoin traded below $21,500 on Feb. 13.

*Bitcoin options aggregate open interest for Feb. 17. Source: CoinGlass*

The 1.12 call-to-put ratio reflects the imbalance between the $355 million call (buy) open interest and the $320 million put (sell) options. If Bitcoin's price remains near $22,700 at 8:00 am UTC on Feb. 17, only $24 million worth of these put (sell) options will be available. This difference happens because the right to sell Bitcoin at $21,000 or $22,000 is useless if BTC trades above that level on expiry.

Bulls aim for $23k to secure a $155 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on Feb. 17 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $21,000 and $22,000: 700 calls vs. 5,500 puts. The net result favors the put (bear) instruments by $100 million.
Between $22,000 and $22,500: 1,800 calls vs. 1,500 puts. The net result is balanced between bears and bulls.
Between $22,500 and $23,000: 3,800 calls vs. 1,100 puts. The net result favors the call (bull) instruments by $60 million.
Between $23,000 and $24,000: 6,900 calls vs. 200 puts. The net result favors the call (bull) instruments by $155 million.

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

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

Bears might benefit from the impact of regulation

Bitcoin bulls need to push the price above $23,000 on Feb. 17 to secure a potential $155 million profit. On the other hand, the bears' best-case scenario requires a 3.5% dump below $22,000 to maximize their gains.

Considering the negative pressure from regulators, bears have good odds of flipping the table and avoiding a $60 million or larger loss on Feb. 17.

More importantly, looking at a broader time frame, there is little room for the FED to slow down the economy without spiraling the debt interest repayments out of control.

Friday will be an interesting display of strength between the short-term impact of a hostile crypto regulation environment versus Bitcoin's long-term scarcity and censorship resistance benefits.

Bitcoin (BTC) price gained 6.3% just two days after reaching $21,370 on Feb. 13, which was the lowest level seen in more than three weeks. The price recovery can be partially explained by the Feb. 14 U.S. Consumer price index data displaying a 6.4% increase in year-over-year inflation in January.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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.

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.

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.

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.