To date, the price of Ether (ETH) has increased 85% in 2021, and options traders are still very optimistic about the altcoin’s near-term performance.
The upcoming expiry on March 26th holds over 96,000 ($ 172 million) call option contracts with open positions between $ 2,240 and $ 3,520. Does a profit of 25% or more correctly reflect current market sentiment, or are these traders just over-optimistic about Ether’s chances of winning?
Ether price in USD. Source: TradingView
Although the effective price for the right to purchase Ether on March 26 at a fixed price is much lower, these options cost buyers at least $ 2 million. If Ether does not increase 25% from its current price of $ 1,808 within two weeks, those call options of $ 2,240 are completely worthless.
Ether Options aggregate Open Interest, March 26th. Source: Bybt
As shown above, the call to put ratio is relatively even at 1.07 and the more bearish put options above the $ 1,800 strike are absent. Meanwhile, bullish traders have crowded the scene above $ 2,240, partly due to their low price. The cost per option contract has ranged from $ 6 to $ 40 in recent weeks.
Even if these call option holders had previously bought while Ether was trading below $ 1,400, it would make sense to close the position and lock in profits. These options lose value over time when the March 26 deadline is reached, unless the price rises above the respective exercise price.
Hence, these traders either expect Ether to break $ 2,240 in two weeks, or the options will be used in more complex strategies. Cointelegraph previously explained how $ 10,000 Ether call options are commonly used for calendar spreads.
The primary risk indicator for options is neutral
To gauge traders’ optimism after Ether hit a local high of $ 1,880 on March 9, take a look at the 25% delta offset.
Whenever the options market is unwilling to take a downside risk, the indicator shifts negatively. On the other hand, a positive delta offset of 25% indicates that traders are demanding less premium (risk) for upside protection.
3-day ether options 25% delta offset. Source: laevitas.ch
The above graph shows the indicator in the range from 5 to negative 10, which is considered a neutral zone.
Had options traders actually been bullish, the call options with upward protection would have been traded at a premium.
As mentioned earlier, there is a possibility that investors could employ a more complex strategy that involves different expiration dates or strikes. However, if these options were bought solely for upward leverage, it certainly does not reflect the overall sentiment measured by the Skew indicator.
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