On May 20, the price of Ethereum (ETH) increased by more than 18% after Eric Balchunas, one of…

On May 20, the price of Ethereum (ETH) rose more than 18% after Eric Balchunas, senior analyst at Bloomberg, increased the chances of approval of an Ethereum exchange-traded fund (ETF) by 25% to 75%. Balchunas noted that the SEC likely faced political pressure, as its previous position showed little interaction with ETF applicants.

source: Eric Balchunas

Balchunas also mentioned that the SEC is asking exchanges like the NYSE and Nasdaq to update their documents, although there is no official confirmation from the regulator. However, Nate Geraci, co-founder of the ETF Institute and president of The ETF Shop, said a final decision was still pending regarding registration requirements for individual (S-1) funds.

source: Nate Geraci

According to Geraci, the SEC could approve the exchange rule changes (19b-4s) separately from the fund registration (S-1), which could technically be delayed beyond the May 23 application deadline. of VanEck’s Ethereum Spot ETF. This gives the regulator more time to review and approve these documents, taking into account the complexities and risks associated with structures involving Proof-of-Stake (PoS) cryptocurrencies.

Analysis of the impact on the upcoming expiry of $3 billion ETH options

The immediately impending Ethereum ETF decision has significantly increased interest in weekly and monthly ETH options expiry. On Deribit, the leading derivatives exchange, open interest for ether options was recorded on May 24 at $867 million, while as of May 31 it reached $3.22 billion. In comparison, the monthly open interest for CME’s ETH options is just $259 million, with OKX’s at $229 million.

Deribit’s call-to-sell ratio strongly favors calls, indicating that traders were more active in buying than putting.

Deribit May 24 ETH Options Open interest, in terms of ETH. Source: Flow

If the Ethereum price remains above $3,600 on May 24 at 8:00 UTC, only $440,000 of short instruments will participate in the expiration. Essentially, the right to sell ETH at $3,400 or $3,500 no longer matters if it trades above those levels.

Meanwhile, holders of puts up to $3,600 will exercise their right, thereby locking the spread. This scenario results in significant open interest of $397 million in call options if ETH remains above $3,600 at weekly expiration time.

The risks are even higher for Ethereum’s monthly expiration on May 31, since 97% of puts are priced at $3,600 or less, making them worthless if Ethereum’s price rises above that limit.

Bullish strategies benefited greatly from ETH’s rise above $3,600

Deribit May 31 ETH Options Open interest, in terms of ETH. Source: Flow

While the end result will likely fall far short of the potential open interest of $3.22 billion, it will significantly favor calls. For example, if the price of Ethereum reached $4,550 on May 31, the net open interest would favor $1.92 billion in call options. Even at $4,050, the spread is still enough for calls at $1.44 billion.

about: Analysts say there are rumors that the SEC is reconsidering its rejection of Ethereum ETFs

It is important to point out that a trader could have sold the put option, thereby gaining positive exposure to Ether once it exceeds a certain price. Likewise, the seller of a call option profits when the price of ETH falls, and more complex strategies can be implemented using different expiration dates. Unfortunately, estimating this effect is not easy.

Ultimately, Ethereum’s unexpected 18% rise surprised options traders, paving the way for a huge upside for bullish strategies. These profits will likely be reinvested to maintain the positive momentum, which bodes well for the ether price post-expiration.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research before making a decision.

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