Ethereum options open interest ahead of month-end expiration on Friday shows a concentration of puts at the $2,200 strike price. One analyst said this could be a hedge against a bullish position, but it could also signal a bearish near-term outlook for the second-largest digital asset by market capitalization.
This comes as Ethereum recently changed hands above $3,000 for the first time since April 2022, as speculators take a stand on whether the U.S. Securities and Exchange Commission will approve a spot Ether ETF in the coming months.
An option is a derivative contract that gives a trader the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before a specific date. A call option grants the right to buy, and a put option grants the right to sell. Traders who buy put options implicitly assume that the market is bearish, while call option buyers assume that the market is bullish.
Investors using hedging strategies
Building a put option at $2,200 could be part of a hedging strategy, according to Bitfinex head of derivatives Jag Kooner. “A popular strategy that could be implemented over the past week is to buy an out-of-the-money (OTM) call option at $3,000 while hedging the downside risk with an OTM put option at $2,200,” analysts told The Block. He pointed out that OTM put options can be used as a tool to hedge against declines while buying the underlying asset.
Kooner highlighted the potential for these institutional traders to use hedging strategies, a sign that market participants may be anticipating a situation where this accumulation of put options is not as bearish as it might initially suggest.
Establishing a bearish position
However, Kooner did not rule out what put positions often indicate: that an increase in the position at that strike price could be due to a negative bias in the coming days.
“Ethereum put options have a strike price of $2,200 and call options are concentrated at $2,400, which could suggest a bearish outlook in the near term as traders prepare for a potential price drop,” Kuhner said.
Ahead of Friday’s month-end expiration, Ether options open interest shows calls clustered at $2,400. Image: Deribit.
The focus of the put option on the $2,200 strike price means that certain market participants have a particular interest or expectation that the price of Ethereum may fall below this level by the option expiration date.
Liquidations surge due to Ethereum volatility
According to The Block’s price page, over the past 24 hours, the price of Ethereum topped $3,000 before falling sharply to $2,917 at 1:35 PM ET.
In the past 24 hours, the price of Ether surpassed $3,000 and then fell sharply. Image: Block.
The perpetual futures market saw a surge in liquidation of Ether positions due to price movements over the past 24 hours, totaling over $47 million, according to Coinglass data.
Both long and short positions suffered similar losses, with short positions worth over $24 million being liquidated and long positions worth over $22 million being liquidated.
The GM 30 Index, which represents the top 30 cryptocurrencies, is currently at 112.32, down 1.80% in the last 24 hours.
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