Contents
- 1 Investors employing hedging strategy
- 2 Buildup of bearish position
- 3 Keep up with the latest news, trends, charts and views on crypto and DeFi with a new biweekly newsletter from The Block’s Frank Chaparro
- 4 Ether volatility causes spike in liquidations
- 5 Bitcoin traders are avoiding substantial short positions, anticipating further price appreciation, analysts say
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Quick Take
- Ether put options are clustering at $2,200, suggesting either a hedge or a short-term bearish outlook for the digital asset, an analyst said.
- In the past 24 hours the price of ether broke through the $3,000 mark, before posting a sharp pull-back, according to The Block’s Price Page.
Ether options open interest ahead of Friday’s end-of-month expiry shows a concentration of puts at a strike price of $2,200. While one analyst said this could be a hedge of a bullish position, it could also indicate a bearish short-term outlook in the second largest digital asset by market capitalization.
This comes as ether recently changed hands above $3,000 for the first time since April 2022 as speculators take positions on whether the U.S. Securities and Exchange Commission will approve of a spot ether ETF in the coming months.
Options are derivative contracts that give a trader the right but not the obligation to buy or sell the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy, and a put offers the right to sell. It is assumed that a trader who buys put options is implicitly bearish on the market, while a call buyer is bullish.
Investors employing hedging strategy
According to Bitfinex Head of Derivatives Jag Kooner, the build-up of puts at $2,200 could likely be part of a hedging strategy. "A popular strategy over the past week that could be in action would be to buy Out-of-the-Money (OTM) calls of $3,000 while also hedging for any downside risk with OTM puts of $2,200," the analysts told The Block. He noted that OTM puts can be used as a tool to hedge against downside while also going long on the underlying asset. Kooner cited the accumulation of open interest on ether futures on the Chicago Mercantile Exchange (CME) as additional evidence to support this viewpoint. "Institutional investors are now very active in the options market and on CME, which has seen a very large increase in open interest, with an increase in OTM puts around $2,200 for ether," he added. Data from The Block confirms this, showing monthly open interest for options on ether futures at an all-time high of $526.66 million, with still over one week left in February. Kooner emphasized the possibility that these institutional traders could be employing a hedging strategy, which would signal that market participants may be foreseeing conditions that are not as bearish as this build-up of puts would initially suggest.
Buildup of bearish position
However, Kooner did not rule out what put positions often indicate: that the increase in positions at that strike price could be due to a negative bias over the next few days.
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"The buildup of ether puts at a $2,200 strike price and calls clustered at $2,400 may suggest a bearish outlook in the short term, with traders preparing for potential price declines," Kooner said.
The concentration of put options at the $2,200 strike price implies that certain market participants harbor a specific interest or expectation that the price of ether could drop below this level by the options expiration date.
Ether volatility causes spike in liquidations
In the past 24 hours the price of ether broke through the $3,000 mark, before posting a sharp pull-back to trade at $2,917 at 1:35 p.m. ET, according to The Block’s Price Page.
In the the perpetual futures markets, fluctuating price action in the past 24 hours has caused a spike in liquidations of ether positions, totaling over $47 million, according to Coinglass data.
Both long and short positions experienced comparable losses, with more than $24 million in shorts being liquidated and over $22 million in longs being wiped out.
The GM 30 Index, representing a selection of the top 30 cryptocurrencies, has decreased by 1.80% in the past 24 hours, now at 112.32.
Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. The Block continues to operate independently to deliver objective, impactful, and timely information about the crypto industry. Here are our current financial disclosures.
© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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About Author
Brian McGleenon is a UK-based markets reporter for The Block. He has worked as a financial journalist and producer for multiple news outlets over the years, such as Fuji Television, The Independent, Yahoo Finance, The Evening Standard, and The Daily Express. Brian is also a screenwriter and producer with one feature film produced and one in development with Northern Ireland Screen. Apart from web3 and cryptocurrency developments, he is also interested in geopolitics, environmental issues, artificial intelligence, and longevity research. Get in touch via email [email protected].
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