Since not closing above the $2,000 mark, the price of Ether (ETH) has seen a sharp 16.8% correction, but not enough to give the bears an advantage when the $1.27 billion monthly options expire in August.
Currently, there are mixed feelings on the network’s upcoming transition to a proof-of-concept (PoS) network and analysts like @DWhitmanBTC believe that the potential benefits of PoS outweigh the lack of a supply security cap and multiple changes in monetary policy over time.
Is #Ethereum worth money?
If so, what is the supply limit? What is the monetary policy?
How can anyone trust that it will not be changed?
— Dick Whitmanaut ∞/21M (@DWhitmanBTC) August 24, 2022
ULTRAS MONEY Is #Ethereum even money? If so, what is the offer limit? What is monetary policy? How can we believe that it will not be modified? — Dick Whitmanaut ∞/21M (@DWhitmanBTC) August 24, 2022.
Regardless of the long-term impact, the Ethereum price was positively impacted when the Merge trial migration date was announced during an Ethereum developer call on July 14. Impact and technical analyst Crypto Rover said that Ether would fall sharply on the day of the merger, due to the release of traders’ positions.
I think #Ethereum fall so hard on Merger day.
The whole prospect is becoming not on the spot market but on the futures market.
—Crypto Rover (@rovercrc) August 23, 2022
I think #Ethereum will fall hard on Merger Day. All this forecast is being bought not in the spot market but in the futures market. Be warned. — Crypto Rover (@rovercrc) August 23, 2022.
One thing is for sure, buyers of leveraged Ether did not expect the sharp correction on August 18th and data from Coinglass shows that this move liquidated $208 million in the derivatives markets.
The bears placed their bets below $1,600
Open interest for monthly July Ether options is $1.27 billion, but the actual figure will be lower as the bears were too supportive after ETH moved below $1,600 between August 20 and 22. The breach of this resistance surprised the bears as only 17% of the options placed on August 26 were placed above this price level.
The call/put ratio of 1.18 shows the dominance of open interest in the $685 million call options over the $585 million put options. However, as Ether sits near $1,650, most of these bearish bets will become worthless.
If the Ether price remains above $1,600 at 08:00 UTC on August 26, only 95 million options will have been issued. The reason for this difference is that the right to sell Ether for $1,600 or less is worthless if Ether is trading above that level at expiration.
Bulls are heavily influenced by the August expiration
Here are the three most likely scenarios based on the current price action. The number of option contracts available on August 26 for call (bullish) and put (bearish) instruments varies depending on the expiration price. The imbalance in favor of each side equals the theoretical profit:
- Between $1,500 and $1,600 : 108,200 calls against 103,900 puts. The bottom line is balanced between bulls and bears.
- Between $1,600 and $1,700 : 45,900 call options compared to 90,000 put options. The net result is in favor of the buying instruments (bullish) by $150 million.
- Between $1,700 and $1,800 : 192,700 call options compared to 26,000 put options. The bulls’ advantage increases to $290 million.
This rough estimate considers put options used in bearish bets and call options exclusively in neutral to bullish trades. Despite this, this oversimplification does not take into account more complex investment strategies.
For example, a trader may have sold a put option, which may gain positive exposure to ether above a specific price, but unfortunately there is no easy way to measure this effect.
Also read: Ethereum Merger in trouble? Developers find bugs before a planned update
Bears could avoid a loss of $150 million
The bulls need to keep the price above $1,600 on August 26 to achieve a $150 million profit. On the other hand, in the best case scenario, the bears will have to break below $1,600 to balance the scales and get a zero return.
Given the sudden liquidation of $270 million in leveraged long (buy) positions on August 18-19, bulls should have less room to drive the price of ETH higher. That said, it is unlikely that the bulls will have the means to push ETH above $1,700 before the August options expire.
The views and opinions expressed here are solely those of theauthor and those do not necessarily represent Cointelegraph. All investment and business transactions involve risk. You should do your own research before making a decision.