Ethereum futures and options data reflects traders’ mixed emotions on $3.2K ETH price

The price of Ether (ETH), which has experienced a rollercoaster ride over the last three months, is primarily due to its two-time rally. It peaked at $4.870 on Nov. 10, and then at $4.780 on December 1. The double top was soon followed by a rejection that led to $490million in long futures contract liquidations within 48 hours.

After Ether rallied 28.5% in just four days, the hope factor was once again instilled on December 8. This was to retest $4,400 support. The downtrend continued soon after that, with Ether hitting a $2,900 low on Jan. 10, the lowest ETH price in 102 days. This was a 40% drop from the $4.870 all time high, and traders began to wonder if a bear market had occurred.

Price of Ether/USD at FTX. Source: TradingView

One could argue that Ether is following Bitcoin’s 42% correction since the Nov. 10 all time high of $69,000. The most recent pullback can partially be attributed to the potential tightening of monetary policies by the United States Federal Reserve and Kazakhstan’s political turmoil effect on mining.

This simple analysis misses some important developments such as China’s digital yuan wallet being the most downloaded app on local mobile app stores Jan. 10. A pilot version of China’s digital currency (CBDC), is being used in selected cities. It also became available for downloading on app stores on January 4.

Traders should monitor futures contract premiums (basis rates) to see how bullish and bearish professional traders are, despite the negative price action and fiscal policy pressure.

Futures traders become more nervous

Basis indicators measure the difference between current spot market levels and longer-term futures contracts. In healthy markets, a 5% to 15% annualized bonus is to be expected. Sellers are able to demand more money in order to delay settlement.

A red alert is issued if this indicator turns negative or fades, which is known as “backwardation”.

Ether 3-month basis rate for futures. Source: Laevitas.ch

The indicator reached a peak of 20% on Nov. 8, when Ether surpassed $4800. However, it gradually fell to an 8% level on Dec. 5, after ETH crashed to $3480. As Ether reached a $2900 low on Jan. 10, its basis rate dropped to 7%. This is the lowest level it has been in 132 days.

Professional Ether traders do not feel comfortable, despite the 10% increase to $3,200 on January 11.

Recent neutralization by options traders was achieved

Analyzing the options markets is a good way to exclude any externalities that may be associated with the futures instrument. The 25% delta skew is a comparison of similar call (buy) or put (sell) options. This metric will be positive if fear is present, as the protective put options premium for similar risk options is higher than other options.

When greed is the dominant mood, the 25% delta-skew indicator will shift to the negative zone.

Ether 30-day options 25% delta-skew Source: TradingView

Market makers and whales that are bearish shift the 25% delta skew indicator to the positive zone. Readings between negative 8 and positive 8 are generally considered neutral.

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On Jan. 8, Ether option traders went into “fear” mode after the 25% delta skew exceeded the threshold of 8%. It topped at 11% just two days later. The quick rebound from the $2900 low gave Ether options traders confidence and reduced the options “fear-and-greed” metric to a mere 3%.

There is no consensus sentiment from Ether traders at the moment. Futures markets are indicating slight discontent, options arbitrage desks, and whales have recently changed their bearish stance. This is because the $3,200 current price is still reflecting the 15% weekly drop but is not exciting.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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