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Ethereum price lingers at key resistance days before $112M options expiry

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Ether (ETH) options contracts open interest have grown five-fold in the past three months to currently sit at $452 million.

The $112 million set to expire this Friday could have a considerable market impact, although that will depend on the balance between bullish and bearish strategies.

Ether options total open interest. Source: Skew

The above chart shows just how strong the ETH options market has been in the past month.

Although its open interest might seem modest compared to Bitcoin’s (BTC) $1.9 billion options market, ETH options have become more relevant over the past couple of months.

$400 strike dominates volumes

Not every options market strategy is bullish or bearish. The covered call consists of buying the underlying asset while selling a call (buy) option.

The goal here is to profit from a fixed income strategy whenever there is a decent enough premium. Overall this is a neutral-to-positive strategy, and these investors will profit as long as Ether remains above a certain threshold.

Ether options open interest by expiry, measured in thousands. Source: Skew

Ether options open interest by expiry, measured in thousands. Source: Skew

Even though open interest for options below the $320 strike is considerable, it could have been built over a month ago while ETH traded below $250.

Such in-the-money options mean strikes are 15% or more below the current ETH price, and are commonly used for the above-mentioned covered calls strategy.

There are currently 97K Ether options with a $400 strike, although this includes all calendar expiries until March 2021. By analyzing the upcoming August 28 expiry exclusively, a trader would have a better gauge of investors’ true sentiment.

Friday’s expiry seems well balanced

Deribit exchange currently holds over 90% market share, and for this reason, their Ether markets will be closely analyzed.

Deribit ETH options markets for August 28 expiry. Source: Deribit

Deribit ETH options markets for August 28 expiry. Source: Deribit

The first thing one should note is the balance between call (buy) options and put (sell) options. As Ether price currently hovers near $390, one should focus on the nearest strike levels.

There are currently 27.8K call options, stacked against 31.4K put options at the $380 to $400 range. This means that, at least for the August expiry, there seems to be an even force between bullish and bearish options strategies.

Skew indicator remains slightly bullish

The 25% delta skew indicator measures how much more expensive (or cheaper) a call option is relative to a similar put option. A negative skew indicates that the cost of protection for bullish movements is more costly than for downside price swings.

ETH 3-month options 25% delta skew. Source: Deribit

ETH 3-month options 25% delta skew. Source: Deribit

Such an indicator has been oscillating in the negative terrain since early-July, and despite recent ETH failure to break $440 resistance, there hasn’t been a sentiment change regarding options pricing.

Futures markets are also holding strong

Unlike options markets, futures contracts necessarily have an equal number of longs and shorts at all times.

This is a central characteristic of such derivatives instruments, although the imbalance of leverage used by either side should be reflected on futures contracts premium relative to spot (regular) markets.

Whenever futures contract buyers (longs) are willing to pay more than the current market price for building leverage positions, its premium will exceed a 5 to 10% annualized rate.

This indicator is known as basis and should sustain a positive level on healthy markets. This situation is known as contango, whereas the opposite, or negative basis, indicates backwardation.

ETH 3-month options 25% delta skew. Source: Deribit

ETH 3-month options 25% delta skew. Source: Deribit

After peaking at an impressive 28% level on August 17, ETH futures basis receded as the cryptocurrency began its 9% drop over the next 48 hours. Despite eventually losing the critical $400 support, ETH futures contracts traders seem unfazed by recent price corrections.

The 1-month ETH futures premium stands at a healthy 13% level, indicating sellers are demanding more money to postpone financial settlement.

Ether derivatives remain bullish

Short-term price movements easily stress out many traders, and behavioral economics studies have proven that the mental impacts of losses vastly exceed those of winnings.

The recent 9% drop from $440 should be deemed insignificant after a 200% rally in the past five months.

Regardless of one’s average purchase price, sustaining price corrections, especially after impressive uptrends, is essential to profit and withstand cryptocurrencies’ extreme volatility.

The last thing one should aim for is Dave Portnoy’s weak hands strategy of giving up a week after entering a notoriously volatile market.

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





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Ethereum

Onessus / DappRadar – Cointelegraph Magazine

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Cointelegraph Magazine is a new publication that goes beyond the daily news and delves much more deeply into the stories, trends, and personalities that inspire cryptocurrency and blockchain conversations around the world.

We are people-centric, delving into *why* the true believers of blockchain feel they can change the world (and why they think it needs to be changed).

Through long-form features, thoughtful analysis, and a little humor and satire, we illustrate how the implementation of this technology is affecting the lives of countless people — today, right now, not at some distant point in the future.

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‘Ethereum Improvement Proposal 3675’ for the Eth2 merge launches on Github

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A formal Ethereum Improvement Proposal has been created for the network’s forthcoming chain merge, bringing Ethereum one step closer to realizing its highly anticipated Proof-of-Stake (PoS) transition.

On July 22, ConsenSys researcher Mikhail Kalinin created a pull-request for EIP-3675 on Github, formalizing the chain merge as an improvement proposal for the first time. The EIP has also been slated for discussion during the July 23 Ethereum Core Devs Meeting by developer Tim Beiko.

The proposal would merge the Ethereum and Eth2 chains, transitioning the network’s consensus mechanism away from Proof-of-Work and empowering stakers to validate transactions.

The EIP notes that no “safety nor liveness failures were detected” since the launch of Eth2’s beacon chain in December 2020, adding:

“The long period of running without failures demonstrates the sustainability of the beacon chain system and witnesses its readiness to start driving and become a security provider for the Ethereum Mainnet.”

Despite the EIP, many leading figures in the Ethereum community, including lead developer Vitalik Buterin, believe it is very unlikely the chain merge will occur during 2021.

The EIP comes amid bidding for the EIP-1559 Supporter NFT series which was launched via Mirror on July 21. The nonfungible tokens demonstrate support for the introduction of a burn mechanism to Ethereum’s fee market as part of the network’s coming London upgrades. All proceeds will be shared among 1559’s contributors, and the tokens were designed by artist “Kitteh.

Since the launch of the beacon chain in December, Eth2 has emerged as the second-largest PoS network by staked capitalization in USD terms, with $12.7 billion worth of Ether locked in staking despite less than 6% of its circulating supply having been deposited.

According to Staking Rewards, Cardano has the largest staked capitalization with $24.2 billion and 62% of supply locked. Solana ranks third with $10.2 billion from 74%, followed by Polkadot with $9 billion from 63%.