Ether (ETH) will face a critical expiration of $ 820 million in options on Friday, August 27. This will be the first time options of $ 3,000 and up have a real chance of fighting, although the bulls seem to have missed a good opportunity to dominate because they were overly optimistic about the price potential of ether.
It’s unclear why $ 140 million of the neutral to bullish call options were placed between $ 3,800 and $ 8,000, but these instruments are likely to become worthless as the monthly expiration date approaches.
Competition and the success of interoperability-oriented protocols affect the price of Ether
The Ethereum network is struggling due to its own success, which repeatedly leads to network congestion and transaction fees of up to $ 20 and more. Additionally, the surge in non-fungible tokens and decentralized funding continued to weigh on the network.
Perhaps some of the inflow that was supposed to drive the Ether price up went to its competitors who recently showed off outstanding performance. For example, Cardano (ADA) is up over 100% over the quarter to date as investors expect its long-awaited smart contracts to hit the market on September 12th.
Another smart contract contender, Solana (SOL), captured a third of the inflows into crypto investment products in the past week, according to CoinShares’ Digital Asset Fund Flows Weekly.
Finally, Layer 2 scaling solutions like Polygon (MATIC) have also seen 150% gains after successfully adding DeFi projects to their interoperability pool and starting a Decentralized Autonomous Organization (DAO) to scale projects in the software development kits.
Ether options aggregate open interest for August 27th. Source: Bybt.com
Notice how the $ 3,000 level heavily dominates Friday expiration with 30,900 ETH options contracts, representing an open interest of $ 100 million.
The initial call-to-put analysis shows a slight prevalence of the neutral to bullish call instruments with 13% larger open positions. However, the bears appear to have been taken by surprise as 83% of their bets were placed at $ 2,900 or below.
To be successful, bears must push and hold Ether price below $ 2,900
Almost half of the neutral to bullish call options have expiry prices of $ 3,500 or higher. These instruments will become worthless if Ether trades below this price on Friday. The option expires at 8:00 a.m. UTC, so traders can expect some price volatility shortly before the event.
Below are the three most likely scenarios that are likely to occur and their estimated gross profit. Keep in mind that some investors could trade more complex strategies, including market neutral strategies that use calls and protective puts. As a result, this assessment is somewhat rudimentary.
The simplified analysis weighs the call (buy) options against the put (sell) options that are available at each exercise level. For example, if Ether expires at $ 3,050, any neutral to bullish call option above $ 3,000 becomes worthless.
- Under $ 2,900: 36,360 calls vs. 32,700 puts. The net result is almost balanced.
- Between $ 2,900 and $ 3,000: 36,770 calls vs. 20,320 puts. The net result favors neutral to bullish instruments by $ 48 million.
- Between $ 3,000 and $ 3,200: 55,660 calls vs. 8,320 puts. The net result favors neutral to bullish instruments by $ 147 million.
- Over $ 3,200: 62,260 calls vs. 1,490 puts. The net result favors neutral to bullish instruments by $ 197 million.
Bears will try to minimize the damage, and luckily, the honeypot doesn’t seem worth a significant effort by the bulls for a cheap price move.
The overly optimistic options traders should rethink their strategy for the September expiration. The Ethereum network appears to be its own biggest enemy, as its increasing adoption has fueled the rise of competitors’ decentralized financial applications.
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