The data of the main exchanges - Deribit and OKEx - show that open interest for ether options - find out here quotation - soared to a new high of $ 194 million this week, breaking the previous record of $ 173,4 million on June 23, according to data provided by the research agency on crypto derivatives Skew.
The options are derivative contracts, which give the buyer the right but not the obligation to buy or sell the underlying asset at a predetermined price by a specific date. A call option represents a right to buy, while a put option gives the right to sell.
Preparations for ETH 2.0
If you look more closely at the distribution of open interest by maturity, it emerges that December is the most popular month. As of press time, there are 240.237 open contracts with a notional value of $ 59 million expiring in December.
Open interest expiring in July is 193.919 contracts (notional $ 47 million), according to Genesis Volatility, an option data platform. "The concentration of assets expiring in December suggests that traders may be preparing for ETH 2.0," said Greg Magadini, CEO of Genesis Volatility, a derivatives data platform.
ETH 2.0 is the name of the long-awaited transition of Ethereum from a proof-of-work (PoW) mechanism to a proof-of-stake (PoS) mechanism. Additionally, ether has gained 90% this year compared to 30% bitcoin growth.
It is possible that some investors are buying call options that are due to expire in December to indulge their bullish views on the cryptocurrency, causing an increase in open interest.
Furthermore, the possibility for investors to hedge their long spot positions with long put options cannot be excluded. After all, the transition to ETH 2.0 has already faced several delays, and the price of the cryptocurrency could drop if the update were postponed until after January 2021.
DeFi growth
Still, ETH 2.0 may not be the only reason for the soaring open interest in ether options. The recent success of DeFi and the growing value of stablecoins could play a role in this dynamic.
Most DeFi projects are based on Ethereum and have witnessed phenomenal growth in the past few months, causing a sharp increase in network activity and transition costs. It could be argued that investors seeking returns may be selling call and put options.
But this seems unlikely, especially in long-term options, given that the cryptocurrency's implied one-month volatility is hovering well below its 71% average. Volatility has a positive impact on the option price and is on average inverse.
In other words, there is a good chance that volatility will increase in the short term and make the options more expensive than they are right now. Therefore, experienced traders prefer to be option buyers when volatility is low and to sell options when they think volatility has peaked. Despite this, the possibility that traders have sold options expiring in July cannot be ruled out.
