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This month’s Ethereum Options Expiry Suggests ETH’s Upside is Limited

  • Posted On - 2021-03-12 06:42:47

Ethereum price has been in surge since the starting of this year but key options indicators suggest overcoming the $2,000 level will be a big challenge.

To date, Ether (ETH) has gained almost 85% in 2021, and options traders are still highly optimistic about the altcoin's short-term performance.

The upcoming March 26 expiry holds over 96,000 ($172 million) call option contracts open interest between $2,240 and $3,520. Does more than 25% gain correctly reflect the current market sentiment, or are these traders simply over-optimistic about Ether's odds?

However the effective price for the right to obtain Ether at a fixed price on March 26 is much lower, these options cost approximately $2 million to the buyers. If Ether fails to increase by 25% from the current $1,808 price in two weeks, the chances are that these $2,240 call options will be absolutely worthless.

Even if these call option holders previously bought while Ether price was below $1,400, it would make sense to close the position and book the profits. These options will lose value over time as the March 26 deadline arrives unless the price rises above their respective strike price.

Therefore, either all these traders expect Ether to reach $2,240 in two weeks, or the options are being used in more complex strategies. Cointelegraph previously explained how $10,000 Ether call options are often used on calendar spreads.

The primary risk indicator for options is neutral

Whenever the options market behaves to not take downside risk, the indicator shifts negatively. On the other side, a positive 25% delta skew indicates traders are demanding less premium for upside protection.

Though there is a possibility that investors are using a more complex strategy that involves several expiry dates or strikes. Still, if these options have been bought exclusively for upside leverage, it certainly doesn't reflect the overall sentiment as measured by the skew indicator.