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Open interest in Ethereum options increases by 315%: are the institutes optimistic?

Ether (ETH) options were introduced on the Deribit derivatives exchange more than a year ago, but have recently gained in importance.

Open Interest (OI) is the main indicator of the activity of derivative contracts and in Ether options have increased 315% to $ 158 million in the past two months.

This surge in OI has prompted many retail investors to make bullish forecasts for the price of ether, but it is important that participants take a closer look at the numbers.

Open interest in Ethereum options increases by 315%: are the institutes optimistic?
Open interest in Ethereum options increases by 315%: are the institutes optimistic?

Deribit ETH Option Open Interest. Source: Skew

Open interest in ETH options in deribit. Source: Skew

This open interest number does not necessarily mean that professional investors are bullish or bearish.

As Cointelegraph previously reported, Call options offer buyers the opportunity to leverage without taking the risk of liquidation. In the meantime, put options are a great way to protect yourself from a possible future sale.

Ethereum sending addresses (7 days MA). Source: glass knot

Shipping addresses from Ethereum (7 days MA). Source: glass knot

There were some bullish signals from active ETH shipping addresses and the metric recently peaked in a year. As reported earlier this week Grayscale’s Ethereum Trust has accumulated more than $ 110 million in ether during 2020.

A closer look at open interest rate and call options also provides valuable insights into trading activities in derivatives that support the current mood on the bull market.

Deribit ETH options are open for June 26th. Source: Deribit

ETH Options Open Interest in Deribit for June 26th. Source: Deribit

In order to better assess market sentiment, investors should only measure their open interest in contracts with more realistic chances of winning. Buy options (bullish) above $ 260 and put options (bearish) below $ 200 don’t seem very likely in the next 12 days, so the market puts them below $ 2.

For this specific term There are 50,000 sales contracts versus 40,000 sales contracts within the interest rate range, which is circled in red in the graphic above. This is a slightly bullish signal, especially when 17,000 call option contracts enter the money when ether exceeds $ 240.

Deribit ETH options are open for July 31st. Source: Deribit

ETH Options Open Interest in Deribit as of July 31. Source: Deribit

The same analysis July contracts are different, as there are only 14,000 open (bullish) contracts up to a price range of + 20%. In the meantime, 16,700 contracts are open (bearish). This suggests that investors are slightly bearish when they mature.

As the expiration date approaches, Analysts will be able to get a better overview as most stocks are still focused on the June contract, which is why the outstanding open positions are valued.

Long and short derivatives index

Checking long and short indices on exchanges provides useful data for measuring investor sentiment. In this case, Leverage margin trade charts must be analyzed for both the ETH / USD pair and the ETH / BTC pair.

ETH / USD craves the daily chart. Source: TradingView

Daily chart of the long contracts of the ETH / USD pair. Source: TradingView

As shown above ETH / USD long contracts are almost twice the size of short contracts. The same applies to long ETH / BTC contracts, which are also twice as large as short contracts.

ETH / BTC craves the daily chart. Source: TradingView

Daily chart of the long contracts of the ETH / BTC pair. Source: TradingView

Other exchanges like OKEx have different measurements of users’ net positions in derivatives contracts.

The following graphic shows that ether futures contracts were mainly used to use long positions. Despite a recent decline in this indicator, long positions outperformed short contracts by 7%.

ETH contract long / short ratio. Source: OKEx

Relationship between long / short ETH contracts. Source: OKEx

What about open interest in ether futures?

ETH Futures Aggregate Open Interest. Source: Skew

Aggregated open interest in ETH futures. Source: Skew

Open interest in ether futures contracts increased 67% to $ 671 million in the past two monthsaccording to skew data.

An important point to keep in mind is that each futures trade requires a buyer and seller of the same size. This means that there is no way to infer the net exposure that professional traders are targeting.

Liquid futures markets offer large investors a tool to quickly create or hedge existing positions. This surge in open interest is definitely a strong sign of the appetite of professional investors, but it would be a mistake to simply conclude that increased institutional investor engagement means that investors are optimistic about Ether’s future.

What to look for

Overall, a slight short-term upward trend is confirmed on all ether derivative markets. In addition, Deribit’s increasing open interest could lead to additional volatility for maturities with relevant open interest.

The June 26 contract, which expires in less than twelve days, will be a good indicator as the strike has an open interest of $ 240. There is a big price for buyers of call option contracts to support the price.

The deribit expires at 8:00 UTC and all options listed are settled in Europe in cash. This means that buyers cannot run before expiration.

The ETH Index in Deribit is equally weighted and consists of up to eight exchanges without the highest and lowest values. This dramatically lowers incentives for price manipulation, but does not completely wipe them out.

The views and opinions expressed here are solely those of author and do not necessarily reflect Cointelegraph’s views. Every investment and trade movement involves risks. You have to do your own research when making a decision.

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