Since Sept. 1, Ether (ETH), has been in a bearish channel, but it is currently battling for its resistance.
ETH bulls are likely to profit $115 million despite headwinds. The entire $250 million in neutral-to-bearish put option value was rendered worthless by the 21% pump during the week.
Coinbase: Ether price in USD Source: TradingView
Regulative fear restricts the upside
It is understandable that negative headlines regarding increasing regulatory scrutiny of crypto could have subdued prices last week, especially since China has banned all cryptocurrency activity.
Binance and Huobi were among the major crypto exchanges that stopped all services in China. A few of the biggest Ethereum mining pools had to be shut down.
The negative press followed.
Citadel Securities founder, one of the largest market-making firms in the world, stated that the company doesnt trade cryptocurrency due to regulatory uncertainties. Russian State Duma Committee on Financial Markets Chairman is also discussing increasing regulations to protect retail investors.
It is easy to see why bears bet at $3,200 and lower based on negative newsflow. The past week has seen those who put (or sell) options lose value quickly.
The Oct. 8 expiry is a test of strength for bears, as any price above $3500 will mean a bloodbath due to the absolute dominance by call (buy) options.
For Oct. 8, Ether options combine open interest. Source: Bybt
The weekly expiry was dominated by the $250-million neutral to-bearish instruments, 16% more than the $210 million call (buy) options.
The call-to-put ratio can be misleading as the recent ETH rally could wipe out most of their bearish wagers if Ether remains above $3,000. If Ether is trading below $4,000, a right to purchase ETH will not be worth anything.
Bears should give up and accept the $115 million loss
94% of the put options where the buyer has the right to sell Ether at a predetermined price were placed at or below $3,500. If ETH trades at or above this price on Oct. 8, these neutral-to-bearish instruments are worthless.
These are the most likely scenarios based on the current price levels. The imbalance favoring one side is the potential profit from expiry.
This data indicates how many contracts will still be available at the expiry price on October 8.
Between $3,100 to $3,300: 14,300 call vs. 9,800 put. The net result is somewhat balanced between bears and bulls. Between $3,300 to $3,500, 21,650 calls vs. 1,900 put. Bulls are favored by $66 millions; Between $3,500 & $3,700, 32,050 calls vs. zero puts. Bulls win by $115 Million; Between $3,700 & $3,900, 43,300 calls vs 0 puts. Bulls make $165 million more.
This rough estimate includes call (buy) options in bullish strategies, and put (sell), options in neutral-to bearish trades. This simplifies investment strategies that are more complicated.
Related:Bitcoin bears could be trapped if BTC prices remain above $50K — Here are the reasons
A trader might have sold a put option to gain Ether exposure above a certain price. Unfortunately, its not possible to accurately estimate the effect.
As the above estimate indicates, there is a $47million gain for the bears by pressing below $3,500. Bulls can increase their advantage by $49 Million by taking the Oct. 8 options expiry price above 3,800.
At the moment, bulls hold absolute control and both sides have incentives to push the price $200 higher or lower. Bears should abandon the fight and get ready for next weeks expiry.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.