On May 20, the price of Ether (ETH) surged more than 18% after Bloomberg senior analyst Eric Balchunas increased the odds of approval for an Ethereum exchange-traded fund (ETF) from 25% to 75%. Balchunas noted that the U.S. Securities and Exchange Commission likely faced political pressure because it had little involvement with ETF applicants in its previous stance.
Balchunas said the SEC has reportedly asked exchanges such as the NYSE and Nasdaq to update their filings, although there has been no formal confirmation from regulators. Nonetheless, Nate Geraci, co-founder of ETF Lab and president of ETF Store, said a final decision on registration requirements for individual funds (S-1s) is still pending.
According to Geraci, the SEC could approve the exchange rule change (19b-4s) separately from the fund registration (S-1), which could technically be delayed beyond the May 23 deadline for VanEck’s Ethereum spot ETF request. This will allow regulators additional time to review and approve these documents, taking into account the complexities and risks associated with structures associated with Proof-of-Stake (PoS) cryptocurrencies.
Analysis of Impact of Upcoming $3 Billion ETH Options Expiration
The impending decision by the Ethereum ETF has significantly increased interest in weekly and monthly ETH options expirations. On leading derivatives exchange Deribit, Ethereum options open interest was recorded at $867 million on May 24, and on May 31 it hit an impressive $3.22 billion. By comparison, CME’s monthly ETH options open interest is only $259 million and OKX’s is $229 million.
Deribit’s call-to-put ratio heavily favors call options, indicating that traders are more active in buying call options than put options.
If the price of Ether remains above $3,600 at 8:00 AM UTC on May 24, $440,000 of the puts will expire. Essentially, the right to sell ETH at $3,400 or $3,500 becomes irrelevant if it is trading above these levels.
Meanwhile, holders of call options worth up to $3,600 will exercise their rights, guaranteeing the price difference. In this scenario, if ETH remains above $3,600 at weekly expiration, there would be a significant open interest of $397,000,000 in favor of the call option.
The stakes are much higher for the May 31st monthly ETH expiration, as 97% of put options are priced below $3,600, making them worthless once Ether’s price exceeds this threshold.
The bullish strategy yielded big gains as ETH rose above $3,600.
The end result is a far cry from the potential $3.22 billion in open interest, but it would be quite favorable for the call option. For example, if the price of Ether reaches $4,550 on May 31, net open interest would favor the call option by $1.92 billion. Even at $4,050, the margin still favors the call option by $1.44 billion.
Related: Analysts say there are rumors that the SEC is reconsidering its rejection of the spot Ether ETF.
It is important to highlight that traders can gain positive exposure to Ether by selling put options if it exceeds a certain price. Likewise, call option sellers can profit when the price of ETH falls and implement more complex strategies using different expiration dates. Unfortunately, estimating this effect is not straightforward.
Ultimately, Ether’s unexpected 18% increase surprised options traders, setting the stage for significant gains for bullish strategies. These profits will likely be reinvested to maintain positive momentum, which bodes well for Ether’s price after expiration.
This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.