Friday, January 28, 2022

Bears target new lows for Ethereum as Friday’s $1.1B options expiry approaches

Ether (ETH) price fell below the $3,000 support on Jan. 21 as regulatory uncertainty continues to weigh on the sector and rumors that the United States Securities and Exchange Commission is reviewing DeFi’s high-yield crypto lending products continue to circulate are.

On Jan. 27, the Russian Ministry of Finance submitted a crypto regulatory framework for review. The proposal proposes that crypto operations be conducted within traditional banking infrastructure and that mechanisms for identifying traders’ personal information are included.

More bearish news came when Ryan Korner, a top IRS CID special agent in Los Angeles, made negative remarks during a virtual event hosted by the USC Gould School of Law. According to Ryan, crypto is the “future” but “fraud and manipulation are still rampant in the space.”

Ether bulls are trying to determine if Jan. 24’s drop to $2,140 was the final bottom of the current downtrend. This 47.5% correction in 30 days resulted in the liquidation of long futures contracts totaling $1.58 billion.

Ether/USD price on FTX. Source: TradingView

Notice how Ether’s price has been trending down for 75 days, respecting a channel that is currently holding $2,200 as a support level. On the other hand, a 19% gain from the current $2,500 to the $3,000 resistance would not necessarily indicate a trend reversal.

Oddly, call (buy) option instruments dominated Friday’s expiration of $1.1 billion, but bears are better positioned after Ether price stabilized below $3,000.

Ether options aggregate open interest for expiry on Jan 28th. Source: CoinGlass

A broader view using the call-to-put ratio shows an 82% advantage for ether bulls as the $680 million call (buy) instruments have more open interest versus the $410 million -Have put (sell) options. However, the 1.82 call to put indicator is deceptive as the price drop below $3,000 caused most bullish bets to become worthless.

For example, if the price of Ether stays below $2,500 at 8:00 UTC on January 28, only $57 million worth of these call (buy) options will be available. This effect occurs because the right to buy ether at $2,500 has no value when trading below that level.

Data suggests bulls are set for a significant loss

Below are the three most likely scenarios based on current price action. The number of options contracts available on Friday for bull (call) and bear (put) instruments vary based on the expiry price. The imbalance in favor of each side represents the theoretical gain:

  • Between $2,200 and $2,400: 3,200 calls vs. 121,500 puts. The net result is $270 million in favor of put instruments (bears).
  • Between $2,400 and $2,700: 19,500 calls vs. 95,500 puts. The net result favors bears by $190 million.
  • Between $2,700 and $2,900: 34,700 calls vs. 73,400 puts. The net result favors put (bear) options by $110 million.

This rough estimate takes into account the call options used in bullish bets and the put options used in neutral to bearish trades only. Nevertheless, this simplification ignores more complex investment strategies.

For example, a trader might have sold a call option, effectively gaining negative exposure to Ether above a certain price. But unfortunately there is no easy way to estimate this effect.

Bears will try to keep ETH below $2,400

Ether bears need a gentle push below $2,400 to lock in $270 million in profit on Friday. On the other hand, bulls would need an 8.4% price recovery from the current $2,500 to cut their loss by 58%.

Given the declining regulatory news flow, ether bulls are unlikely to be willing to take more risk right now. Therefore, bulls should focus their efforts on partially salvaging this defeat by keeping Ether price above $2,500 resulting in a loss of $170 million.

January seems to have given Ether’s bears the upper hand to keep the price under pressure in the short-term.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You should do your own research when making a decision.



source https://www.bisayanews.com/2022/01/28/bears-target-new-lows-for-ethereum-as-fridays-1-1b-options-expiry-approaches/

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