Ethereum options traders anticipate upward movement to $880, here is why

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Ethereum
options data shows traders predict a continued surge to $880 over the next four weeks.

Ether (ETH) price has risen 88% since November, astounding even the most bullish investors as the top altcoin secured a 2020 high of $750.

Apart from the upcoming launch of CME ETH futures scheduled for 8 February, the phenomenal growth of the Total Locked Value (TVL) in the Decentralized Finance Protocols also played a major role.

Total Value Locked, USD. Source: DeFi Pulse

As indicated above, investors are even more confident that Eth2 has been a success, despite the real potential of delays and implementation hurdles.

The recent 2-year low in ETH mining balances is another possible bullish factor in the background. This certainly eases the potential to sell pressure and opens room for further buoyancy.

Over the past three months, open interest on Ether options has increased by 150 percent to a total of $880 million. This incredible build-up occurred as the cryptocurrency broke the $700 resistance, reaching its highest price since May 2018.

 

Ether options open interest. Source: Crytorank.io

The put-call ratio flipped bullish

By measuring whether more activity involves calling (purchase) options or putting (selling) options, the overall market sentiment can be measured. Generally speaking, call options are used for bullish strategies, while options are set for neutral to bearish ones.

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Ether options open interest put/call ratio. Source: Cryptorank.io

The put/call ratio has gone down slightly, considering the recent price rally. This shift shows that volumes have been dominated by the more bullish call options. Whenever traders lock in gains or brace for a possible downside, one can assume precisely the opposite.

That’s a startling contrast to two weeks ago’s 0.94 mark, which showed that put options were well matched with the options for neutral to bullish calling.

Options data shows traders expect another 20% hike to $880

According to the Black & Scholes model, the probabilities of current option trades are determined. This data is provided by Deribit exchange as ‘delta’. In short, for each hit, these are the percent-based odds.

Ether Jan. 29 call options delta. Source: Deribit

The $880 strike for Jan. 25 has a 34 percent chance of occuring, according to the above results, while according to the options pricing model, the most traded $960 strike holds a 25 percent strike.

Notice that the mathematical model appears to be excessively conservative, as a mere 59 percent odd is even the $720 attack.

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The March expiry is also extremely bullish

The chances of Ether’s price topping $880 are much more likely with 86 days remaining before the expiry of March 2021.

Ether Sept. 25 call options delta. Source: Deribit

According to the Black & Scholes pricing model, the same $880 strike is now 49 percent odd, while the staggering $1,120 expiry is 33 percent.

As shown above, the trading options for March 2021 are an acceptable amount of volume and cost $114 each. This data is indisputable evidence of the bullish mood of traders.

Futures market data reflects bullish sentiment

The study of the futures markets premium is an even better way to calculate skilled investor sentiment towards the market. The discrepancy between longer-term future contracts and the existing spot price of Ether (ETH) tests this.

Mar. 2021 Ether futures premium. Source: Digital Assets Data

The graph above shows that on Dec. 19, the indicator peaked at 5.8 percent and on Dec. 28 it hit the same amount again as the multi-year high of Ether’s price. A sustained premium for futures above 3.5% reflects optimism, although it is far from excessive.

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The current rate of 4.3 percent is equivalent to an annualised premium of 18 percent and is considerably higher than the levels seen in previous months. This illustrates that after hitting a high swing at levels of $750, experienced traders remain optimistic in the future potential of Ether.

If the derivatives market will reduce its optimism could be too premature to say, but bulls seem to be completely in charge for the time being.

Although the probability of a correction in the price of Ether is still present, it is unlikely to be sufficiently large to cause havoc as the market does not display any signs of excessive optimism.

-cointelegraph/@noshitcoins

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