To date, Ether (ETH) price has gained 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 a 25% or higher gain correctly reflect the current market sentiment, or are these traders simply over-optimistic about Ether’s odds?
Ether price in USD. Source: TradingView
Even though the effective price for the right to acquire Ether at a fixed price on March 26 is much lower, these options cost buyers at least $2 million. If Ether fails to increase by 25% from the current $1,808 price in two weeks, these $2,240 call options will be completely worthless.
Ether options aggregate open interest, March 26. Source: Bybt
As shown above, the call-put ratio is relatively balanced at 1.07, and the more bearish put options above the $1,800 strike are nonexistent. Meanwhile, bullish traders have crowded the scene above $2,240, partially because of their low price. The cost per option contract over the past couple of weeks ranged from $6 to $40.
Even if these call option holders previously bought while Ether was trading below $1,400, it would make sense to close the position and lock in 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 these traders effectively expect Ether to break $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
To assess traders’ optimism level after Ether marked a local $1,880 top on March 9, one should look at the 25% delta skew.
Whenever the options market is unwilling to take downside risk, the indicator shifts negatively. On the other hand, a positive 25% delta skew indicates traders are demanding less premium (risk) for upside protection.
3-day Ether options 25% delta skew. Source: laevitas.ch
The above chart shows the indicator ranging from 5 to negative 10, which is considered a neutral zone.
Had option traders effectively been bullish, the upside-protection call options would have been trading at a premium.
There’s a possibility, as previously stated, that investors are using a more complex strategy that involves different 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.
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