Ethereum options data shows professional traders expect strong resistance at $3,600

The price of Ether (ETH) has rebounded 13% from its Jan. 9 low at $2,950, but it seems premature to call this move the low point of the cycle. Instead, the larger bearish move has prevailed and while it appears to be primarily related to the price of Bitcoin (BTC), regulatory concerns and tighter policy by the US Federal Reserve have also been blamed for the move.

BTC and Ether have been under pressure since regulators turned their attention to stablecoins. On Nov. 1, the US Treasury Department urged Congress to ensure stablecoin issuers are regulated similarly to US banks.

Price of the ETH/USD pair on FTX. Source: TradingView

Currently, the descending channel formation initiated in mid-November shows resistance at $3,850. Average network transaction fees have also climbed back above $50 and the later in the Ethereum 2.0 upgrade, the better the situation will be for the competing chains.

Regardless of the reason behind Ether’s 28% price drop over the past six weeks, the bulls missed out on a $300 million profit at the weekly options expiry on Jan 14. Unfortunately for them, this scenario of $4,500 and up seems unfeasible at the moment.

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Aggregate Ether Options Open Interest for Jan 14. Source: Coinglass.com

The call-to-put ratio shows an 89% advantage for the bulls because $380M calls have higher open interest versus $200M puts. The current measurement of 1.89 is misleading because the recent drop in the price of Ether made most of the bullish bets lose their value.

For example, if the price of Ether remains below $3,300 at 8:00 am UTC on January 14, only $24 million in these call options will be available, but there is no value in having the right to buy Ether at $3,300 if it trades below that price.

The bears need an ETH price below $3,300 to lock in a $65 million profit.

Below are the three most likely scenarios based on the current price action. The number of option contracts available on January 14 for bullish (call) and bearish (put) instruments varies depending on the expiration price of ETH. The imbalance in favor of each side constitutes the theoretical profit:

  • Between $3,100 and $3,300: 7,400 call options vs. 27,800 put options. The net result favors the bulls by $65 million.
  • Between $3,300 and $3,500: 22,200 call options vs. 19,300 put options. The net result is balanced between call and put options.
  • Between $3,500 and $32,500: 2,920 call options vs. 15,600 put options. The net result is USD 60 million in favor of the purchase instruments (bullish).

This crude estimate sees call options used on bullish bets and put options exclusively on neutral to bearish trades. Still, this simplification ignores 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.

Bulls don’t stand a chance

Ether bulls would have had a decent $300 million head start had the price sustained above $4,500. However, the current scenario requires a 6% positive move from $3,300 to $3,500 to generate a $60 million advantage.

Considering that there are less than 12 hours left until the options expiration on Friday, the bulls will probably focus their efforts on keeping the price above $3300 to balance the scales.

The views and opinions expressed herein are solely those of the Author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.

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Ethereum options data shows professional traders expect strong resistance at $3,600

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