$1.26 Billion In Ethereum Options Expire On Friday And Bulls Are Ready To Push ETH Price Higher

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Ether (ETH)’s 53% rally between July 13 and 18 gave bulls a head start in July’s $1.26 billion monthly options expiration. The move came as Ethereum developers set a tentative date for the “Merge”, a transition from the tricky proof-of-work (PoW) mining mechanism..

Ether USD Price Index, 12 Hour Chart. Source: TradingView

According to some analysts, by removing the extra ETH issuance used to fund the energy costs required on the traditional mining consensus, Ether would finally achieve “ultrasound money” status.

Whether sound monetary policy revolves around constantly changing issuance and burning rules remains an open question, but there is no doubt that the video call from the Ethereum developers on July 14 helped to catapult the ETH price.

On July 26, a sudden dramatic spike in the Ethereum network’s active addresses sparked multiple speculation as to whether Ether will ever reach its previous all-time high. Analytics firm Santiment reported that the number of 24-hour daily active addresses reached 1.06 million, breaking the previous 718,000 peak in 2018. Theories such as “Binance is doing a service” have emerged, but nothing has been confirmed yet.

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The main victims of Ether’s impressive 20% recovery on July 27 were leveraged bearish traders (shorts) who faced $335 million in total liquidations on derivatives exchanges, according to data from Coinglass.

Bears placed their bets below $1,600

The open rate for Ether’s monthly option expiration in July is $1.27 billion, but the actual figure will be lower because the bears were too optimistic. These traders felt too comfortable after ETH fell below $1,300 between June 13 and 16.

The pump above $1,500 on July 27 surprised bears as only 17% of put (sell) options for July 29 have moved above that price level.

Ether options aggregate open interest for July 29. Source: CoinGlass

The call-to-put ratio of 1.39 shows the dominance of the $730 million call-to-put rate over the $530 million put options. Nevertheless, since Ether is near $1,600, most bearish bets are likely to turn worthless.

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If the price of Ether remains above $1,500 on July 29 at 8:00 AM UTC, there will be only $80 million put (sell) options available. This difference arises because a right to sell Ether for $1,500 or lower is worthless if Ether trades above that level at maturity.

Taurus are comfortable even under $1,600

Below are the four most likely scenarios based on the current price action. The number of option contracts available on July 29 for call (bull) and put (bear) instruments varies depending on the expiration price. The imbalance that favors both parties constitutes the theoretical gain:

  • Between $1,400 and $1,500: 120,400 calls versus 80,400 puts. Net income favors the call (bull) instruments by $60 million.
  • Between $1,500 and $1,600: 160,500 calls versus 55,000 puts. The net income is in favor of bulls by $160 million.
  • Between $1,600 and $1,700: 187,100 calls versus 43,400 puts. Net income favors call (bull) instruments by $230 million.
  • Between $1,700 and $1,800: 220,800 calls versus 40,000 puts. Bulls advantage increases to $310 million.

This rough estimate takes into account the put options used in bearish betting and the call options used in neutral to bullish trades only. Yet this oversimplification does not take into account more complex investment strategies.

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For example, a trader could have sold a put option and gained positive exposure to Ether above a certain price, but unfortunately there is no easy way to estimate this effect.

Bears need to throw in the towel and focus on the August due date

Ether bulls must hold the price above $1,600 on July 29 to secure a decent profit of $230 million. On the other hand, the bears’ best-case scenario requires a push of less than $1,500 to reduce damage to $60 million.

Given the brutal short positions of $330 million that were liquidated on July 26 and 27, bears should have less margin to push the ETH price lower. With this said, bulls are better positioned to continue driving ETH higher after the July 29 monthly options expiration.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of TBEN. Every investment and trading move involves risks. You should do your own research when making a decision.