Ether (ETH) performance over the past three months has not been satisfactory for holders and the 50% correction from April 3 has seen the altcoin test the $ 1,800 support for the first time since July 2021.
Due to equity volatility, investors sought refuge in US dollars and on May 13, the DXY index reached a 20 – year high. The DXY measures the dollar against a basket of major foreign currencies, including the British pound (GBP), euro (EUR) and Japanese yen (JPY).
In addition, the five-year U.S. Treasury yield hit its highest level since August 2018, trading at 3.10% on May 9 and signaling that investors are demanding higher yields to offset inflation. In summary, the macro data reflects investors’ risk avoidance attitude, which partly explains Ether’s withdrawal.
The reorganization of seven blockchains on Ethereum’s Beacon on May 25 also caused panic among Ether traders. A valid transaction sequence was removed from the chain because a competition block received more support from network participants. Fortunately, this scenario is not uncommon and may have been caused by a miner with high resources or a bug.
The main victims of the 11% Ether price correction were (long) leveraged traders who saw $ 160 million in global liquidations in derivatives markets, according to data from Coinglass.
The bulls placed their bets on $ 2,100 and above
The open interest for the monthly ether options expiring in May is $ 1.04 billion, but the actual figure will be much lower because the bulls were overly supportive. The brief rise to $ 2,950 on May 4 may have upset these traders, as their bets for May 27 options expire exceed $ 3,000.
The fall below $ 1,800 surprised the bulls, as almost none of the May 27 call options were placed below this price level.
The call-to-put ratio of 0.94 reflects the small dominance of open interest options of the $ 540 million (sell) options compared to the $ 505 million call options. However, because Ether is close to $ 1,800, any bullish bet is likely to become worthless.
If the Ether price stays below $ 1,800 on May 27 at 8:00 PM UTC, none of the $ 505 million call options will be available. This difference is due to the fact that the right to buy Ether at $ 1,800 or more is worthless if Ether trades below that level expiring.
Bears target $ 325 million profit
Below are the three most likely scenarios based on the current price action. The number of option contracts available on May 27 for call (bullish) and put (bearish) instruments varies depending on the expiration price. Inequality in favor of all sides equals theoretical profit:
- Between $ 1,600 and $ 1,700 : 0 calls per 230,000 put. The net result in favor of placing (bearing) instruments is about $ 370 million.
- Between $ 1,700 and $ 1,800 : 50 calls per 192,300 put. The net yield in favor of bearish instruments is under $ 325 million.
- Between $ 1,800 and $ 2,000 : 3,300 call options for 150,000 send options. The net yield is in favor of the short (bearish) instruments of $ 280 million.
This rough estimate looks at placing options used in bearish bets and call options exclusively in bullish neutral trades. Nevertheless, this oversimplification does not take into account more complex investment strategies.
For example, a trader may sell an add option, which may get a positive exposure to ether above a certain price, but unfortunately there is no easy way to estimate this effect.
Bulls need to throw in the towel and concentrate on expiring in June
Ether Bears must keep the price below $ 1,800 on May 27 to make a profit of $ 325 million. In contrast, the best case scenario for the bulls is to push over $ 1,800 to reduce the damage by $ 45 million.
The bulls liquidated $ 160 million in long leverage positions on May 26, so they should have less space to drive the price higher. That said, there is no doubt that the bears will try to push Ether below $ 1,800 before the May 27 options expire.
These are just the views and opinions expressed herein the author and do not necessarily represent those of Cointelegraph. All investment and business transactions involve risk. You should do your own research before making a decision.