The price of Ether (ETH) has rebounded 13% from its January 9 low of $ 2,950, but it seems premature to call this move the bottom of the cycle. Instead, the larger downward move took hold, and although it appears to be primarily related to the price of Bitcoin (BTC), the move has also been attributed to regulatory concerns and tougher policies by the US Federal Reserve.
BTC and Ether have been under pressure since regulators turned their attention to stablecoins. On November 1, the US Treasury Department asked Congress to ensure that stablecoins issuers are regulated in a manner similar to US banks.
Currently, the descending channeling initiated in mid-November shows resistance at $ 3,850. The average network transaction fees have also climbed back to over $ 50 and the later the Ethereum 2.0 upgrade, the better the situation for competing chains.
Regardless of the reasons for the 28 percent drop in ether price over the past six weeks, the bulls missed an opportunity to make a profit of $ 300 million on the expiration of the weekly options on Jan. 14. Unfortunately, at $ 4,500 or more, this scenario doesn’t seem feasible at the moment.
The call-to-put ratio shows an 89% advantage for bulls, as $ 380 million call instruments have higher open interest than $ 200 million put options. The current measurement of 1.89 is misleading as the recent drop in the price of Ether caused most bullish bets to lose their value.
For example, if the price of Ether stays below $ 3,300 at 8:00 AM UTC on January 14th, there will only be $ 24 million available for these call options, but there is no value in having the right to Ether at $ 3,300 to buy if it trades below this price.
Bears need an ETH price below $ 3,300 to secure a profit of $ 65 million
Below are the three most likely scenarios based on current price developments. The number of options contracts available on January 14th for bullish (call) and bearish (put) instruments varies depending on the expiry price of the ETH. The imbalance in favor of each side represents the theoretical advantage:
- Between $ 3,100 and $ 3,300: 7,400 call options vs. 27,800 put options. The net result favors the cops with $ 65 million.
- Between $ 3,300 and $ 3,500: 22,200 call options vs. 19,300 put options. The net result is balanced between the call and put options.
- Between $ 3,500 and $ 32,500: 2,920 call options versus 15,600 put options. The net result is USD 60 million in favor of purchase instruments (bullish).
This rough estimate takes into account that call options are used in bullish bets and put options are only used in bear-neutral trades. However, this simplification ignores more complex investment strategies.
For example, a trader might have sold a put option, effectively taking positive exposure to ether above a certain price. But unfortunately there is no easy way to gauge this effect.
The cops don’t stand a chance
Ether bulls would have had a decent $ 300 million lead if the price had stayed above $ 4,500. However, the current scenario envisages a positive move of 6% from $ 3,300 to $ 3,500 to generate a $ 60 million head start.
Given that there are less than 12 hours to go before the options expire on Friday, the bulls will likely focus on keeping the price above $ 3,300 to balance the scales.
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