on the crypto
Deribit has started trading Ether (ETH) options with strikes above $ 1.000 and some traders are now betting that the cryptocurrency will reach that price by the end of the year.
The assumptions of a rise in the price of Ether
Over 3.470 contracts of 1.120 ETH call options - here quotation in real time - worth $ 1,3 million were traded for December 2020 and March 2021 expiring this month. At the heart of these exchanges is the Panama-based Deribit exchange, the largest crypto exchange in the world by volume of options trading. "Volumes have been decent and open interest [open positions] is already over 2.500 contracts, which indicates that some traders believe that ETH could potentially show a price movement of over 180% in 5-7 months," said Luuk Strijers, CCO of Deribit. Ether is trading close to $ 390 at press time, representing a 200% gain on an annual basis. The impressive rise in prices and expectations for the continued bull run driven by the DeFi trend could drive options activity deeply out-of-the-money. Open interest in Ether's options market has exploded this year, increasing 2,585% from $ 14 million to $ 376 million, according to data provided by Skew.
ETH options as a forecasting tool
Options market data is used extensively to identify support and resistance levels and potential price trends. For example, Kyle Davies, co-founder of Three Arrows Capital, tweeted Monday that $ 14.000 is a key obstacle for bitcoin, which, if hacked, could open the way to $ 20.000. This is because there is a large build-up of open interest in options at $ 14.000 strike and negligible activity in higher strikes. In the case of Ether, however, the open interest for strikes above $ 1.000 is too small to draw conclusions on investor expectations. As of press time, there are 2.541 contracts open at the strike price of $ 1.120. This is a paltry 0,3% of the total open interest of 878.104 contracts spread over multiple maturities, according to data provided by Deribit. This relatively low number of trades reflects the fact that the options market as a whole sees a low probability of ether trading at $ 1.000 or more by the end of December.
Not just directional bets
Finally, traders rarely accept direct directional bets or long naked positions in out-of-the-money options such as $ 1,120 calls. "It is more likely to be a hedge or part of a more elaborate strategy such as volatility or games of relative value," Denis Vinokourov, head of research at BeQuant, a cryptocurrency exchange and institutional brokerage based in London. However, the accumulation of open interest and other options market metrics are good indicators of market sentiment and become more reliable as the market size grows.
