Although Ether (ETH’s) price bounced 13% off its Jan. 9 low of $2,950 it is premature to consider the move a bottom. The larger bearish trend has prevailed, and although it appears to be primarily correlated with Bitcoin (BTC), regulatory concerns and a tighter United States Federal Reserve Policy have also been blamed.
Since regulators turned their attention to stablecoins, Ether and BTC have been under severe pressure. The U.S. Treasury Department asked Congress on Nov. 1 to ensure that stablecoin issuesrs are regulated in the same way as U.S. banks.
Price at FTX: ETH/USD Source: TradingView
The resistance to the descending channel formation, which was initiated in mid November, is currently at $3,850. The average transaction fee for network transactions has also increased to $50. This means that competing chains will have a better situation if the Ethereum 2.0 upgrade is delayed.
Bulls missed an opportunity to make $300 million profit in Jan. 14’s weekly options expiry, regardless of Ether’s 26 percent price drop over the past six week. They are unable to achieve this $4,500 or higher scenario at the moment.
For Jan. 14, Ether options combine open interest. Source: Coinglass.com
Bulls have an 89% advantage in call-to-put ratio due to the larger open interest of the $380million call (buy) instruments compared to the $200 million put options. Because of the recent Ether price fall, most bullish bets have become worthless, the 1.89 measure is misleading.
If Ether’s price is below $3,300 by Jan. 14, $24 million worth these call (buy), options will still be available. However, it is not worth having the right to purchase Ether at $3,000.
Related: Cointelegraph Consulting, A look at Terra’s ecosystem
To make $65 million in profit, bears must have an ETH price lower than $3,300
Based on current price action, the following are the most likely scenarios. The expiry ETH price will determine the number of options contracts that are available for bulls (call) or bears (put) instruments on Jan. 14. The theoretical profit is the result of an imbalance in favor of each side.
7,400 calls for between $3,100 to $3,300 versus 27,800 puts. The net result favors bears $65 million. Between $3,300 to $3,500: 22,200 call vs. 19,300 put. The net result is balanced between bears and bulls. Above $3,500: 32,500 call vs. 15,600 put. The net result favors the call (bull) instruments by $60 million.
This rough estimate includes call options used in bullish bets, and put options only in neutral-to bearish trades. This oversimplification ignores complex investment strategies.
A trader might have sold a put option to gain Ether exposure above a certain price. Unfortunately, it’s not possible to accurately estimate the effect.
Bulls have no chance
If the price was above $4,500, Ether bulls would have a $300 million advantage. To generate $60 million, however, the current scenario calls for a 6% positive movement from $3,300 and $3,500.
Given that there are only 12 hours before Jan. 14’s options expire, bulls will focus their efforts to keep the price above $3,000. This will balance the scales.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.