Ethereum Price Rises on Spot ETF Rumors – How Are ETH Options Markets Set?
On May 20, the price of Ether (ETH) rose more than 18% after Eric Balchunas, a senior analyst at Bloomberg, increased his approval rating for an Ethereum exchange-traded fund (ETF) from 25% to 75%. Balchunas said the U.S. Securities and Exchange Commission could face political pressure, as their previous position had little to do with ETF applicants.
Balchunas also said the SEC is asking exchanges such as the NYSE and Nasdaq to update its records, although there has been no official confirmation from the regulator. However, Nate Geracchi, founder of the ETF Institute and president of The ETF Store, noted that a final decision regarding the registration requirements for individual funds (S-1s) is still pending.
According to Geraci, the SEC could approve exchange rule changes (19b-4s) separate from the fund's filing (S-1), which could technically delay the May 23 deadline for VanEck's Ethereum spot ETF filing. This allows the regulator more time to review and approve these documents, taking into account the complexities and risks associated with proof-of-stake (PoS) cryptocurrencies.
It ends with an analysis of the impact of the upcoming $3 billion in ETH options
The upcoming decision on the spot Ethereum ETF has greatly increased the demand for weekly and monthly ETH option expirations. On Deribit, the leading derivatives exchange, Ether options open interest was recorded at $867 million for May 24, compared to an impressive $3.22 billion for May 31. By comparison, CME's monthly ETH options open interest stands at just $259 million, while OKX's is at $229 million.
The call-to-put ratio at Deribit is heavily in favor of call (buy) options, indicating that traders are more active in buying than put (sell) options.
If the price of Ether stays above $3,600 on May 24th at 8:00 am UTC, only $440k of the reserved instruments will participate in the expiration. Essentially, the right to sell ETH at $3,400 or $3,500 is irrelevant if it sells above these levels.
Meanwhile, holders of up to $3,600 worth of call options will exercise their right to maintain the price differential. This scenario results in a maximum open interest of $397 million for call options if ETH stays above $3,600 at the weekly expiration.
For the monthly ETH expiration on May 31st, 97% of options will be sold at or below $3,600, making them worthless if the price of Ether crosses this threshold.
Bullish strategies benefited greatly from ETH's rally above $3,600
Although the final result may be a far cry from the $3.22 billion in open interest, it strongly favors call options. For example, if the price of Ether reaches $4,550 on May 31, net open interest would support call options by $1.92 billion. Even at $4,050, the difference remains good at $1.44 billion for the call options.
Related: SEC Reportedly Reconsidering Ether ETF Denial, Analysts Say
It is important to highlight that a trader could have sold a put option, thereby gaining positive exposure to Ether once it reaches a certain price. Similarly, a call option seller can benefit when the price of ETH falls, and more complex strategies can be implemented using different expiration dates. Unfortunately, predicting this outcome is not easy.
In the end, Ether's unexpected 18 percent rise surprised options traders, giving bullish strategies a big boost. These profits can be reinvested to maintain the positive momentum, which is good for Ether's value after the expiration.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
