$1.26 Billion in Ethereum Options Expires Friday and Bulls Are Ready to Drive ETH Price Higher

$1.26 Billion in Ethereum Options Expires Friday and Bulls Are Ready to Drive ETH Price Higher

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

Ether USD price index, 12 hour chart. Source: Trading View

According to some analysts, by removing the additional issuance of ETH used to finance the energy cost required on traditional mining consensus, Ether could finally achieve “ultra-sound currency” status.

Whether or not 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 Ethereum developers on 14 July helped catapult ETH price.

On July 26, a sudden and dramatic spike in active addresses on the Ethereum network raised much speculation as to whether Ether was aiming for its previous all-time high. Analytics firm Santiment reported that the number of 24-hour daily active addresses reached 1.06 million, surpassing the previous high of 718,000 set in 2018. Theories such as “Binance doing a maintenance sweep” emerged, but nothing has been confirmed yet.

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

The bears placed their bets below $1,600

The open interest for the July Ether Monthly Options expiration is $1.27 billion, but the actual figure will be lower as the bears were too bullish. These traders got too comfortable after ETH broke below $1,300 between June 13-16.

The pump above $1,500 on July 27 surprised the bears as only 17% of July 29 puts (sells) were placed above this price level.

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

The call-to-put ratio of 1.39 shows the dominance of $730 million call (purchase) open interest over $530 million put (put) options. As Ether sits near $1,600, most bearish bets will likely become worthless.

If Ether’s price remains above $1,500 at 08:00 UTC on July 29, only $80 million put options will be available. This difference occurs because a right to sell Ether at $1,500 or less has no value if Ether is trading above that level at expiry.

Bulls are comfortable even below $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 buy (bullish) and sell (bearish) instruments varies depending on the expiry price. The imbalance in favor of each side constitutes the theoretical gain:

  • Between $1,400 and $1,500: 120,400 calls vs. 80,400 put options. The net result favors the buying instruments (bullish) by $60 million.
  • Between $1,500 and $1,600: 160,500 calls vs. 55,000 put options. The net result favors the bulls by 160 million.
  • Between $1,600 and $1,700: 187,100 calls versus 43,400 puts. The net result favors the buying instruments (bullish) by $230 million.
  • Between $1,700 and $1,800: 220,800 calls vs. 40,000 put options. Bulls benefits increase to $310 million.

This raw estimate considers put options used in bearish bets and call options exclusively in neutral to bullish trades. Even so, this oversimplification fails to account for more complex investment strategies.

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

Bears should throw in the towel and focus on the August expiry

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

Given the brutally leveraged short positions of $330 million liquidated on July 26 and 27, bears should have less room to drive the price of ETH lower. That said, the bulls are in a better position to continue pushing ETH higher after the July 29 monthly options expiry.

The views and opinions expressed herein are those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.