Ether (ETH) will experience a significant expiration of $ 820 million in monthly options on Friday, August 27. That will be the first time that options of $ 3,000 and above will have a real fighting chance, although the bulls seem to have missed a good chance to control expiration because they were too optimistic about Ether’s price potential.
It’s unclear why $ 140 million in neutral-to-bullish calls were opened between $ 3,800 and $ 8,000, but these instruments are likely to be worthless as the monthly expiration approaches.
Competition and the success of protocols focused on interoperability influence the price of Ether
The Ethereum network has struggled due to its own success, which constantly leads to network congestion already transaction fees up to USD 20 or more. Additionally, the rise of non-fungible tokens and decentralized finance put more strain on the network.
Perhaps some of the influx that was supposed to drive up the price of Ether went to its competitors, who posted surprising returns recently. For example, Cardano (ADA) is up more than 100% so far this quarter as investors await the long-awaited launch of smart contracts on September 12.
Solana (SOL), another smart contract contender, captured a third of inflows to cryptocurrency investment products over the past week, according to CoinShares’ “Digital Asset Fund Flows Weekly” report.
Lastly, Layer 2 scaling solutions such as Polygon (MATIC), have also seen a 150% increase after successfully adding DeFi projects to their interoperability pool and launching a decentralized autonomous organization (DAO) to scale projects in software development kits.
See how the $ 3,000 level broadly dominates Friday’s expiration with 30,900 ETH option contracts, representing $ 100 million open interest.
Initial analysis of the share of call and put options shows a slight predominance of neutral to bullish call instruments, with 13% more open interest. Nevertheless, the bears seem to have been caught off guard because 83% of their bets were opened at $ 2,900 or less.
To emerge victorious, the bears need to push and hold the Ether price below $ 2,900.
Almost half of bullish-neutral calls have expiration prices set at $ 3,500 or more. These instruments will be worth nothing if Ether trades below that price on Friday. Options expiration occurs at 8:00 am UTC, so traders could expect some price volatility near the event.
Below we show you the three scenarios that are likely to occur and their estimated gross result. Keep in mind that some investors may be implementing more complex strategies, including market neutrals that use protective call and put options. Consequently, this estimate is somewhat rudimentary.
The simplistic analysis weights the call options against the put options available at each price level. So, for example, if Ether expires at $ 3,050, all neutral or bullish call options above $ 3,000 will lose their value.
- Below $ 2,900: 36,360 call options versus 32,700 put options. The net result is practically balanced.
- Between $ 2,900 and $ 3,000: 36,770 call options versus 20,320 put options. The net result favors instruments from neutral to bullish for USD 48 million.
- Between $ 3,000 and $ 3,200: 55,660 call options versus 8,320 put options. The net result favors instruments between neutral and bullish at USD 147 million.
- Above $ 3,200 62,260 call options vs. 1,490 put options. The net result favors neutral or bullish instruments for USD 197 million.
The bears will try to minimize the damage, and luckily for them, the crosshairs for a favorable price movement does not appear to be worth a significant effort from the bulls.
As for overly optimistic option traders, they’d better rethink their strategy for the September expiration. The Ethereum network appears to be its biggest enemy because growing adoption has fueled the rise of competing decentralized financial applications.
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