On May 20th, the price of Ether (ETH) experienced a significant surge of over 18%. This was driven by Eric Balchunas, a senior analyst at Bloomberg, increasing the approval odds for an Ethereum exchange-traded fund (ETF) from 25% to 75%. Balchunas highlighted that the United States Securities and Exchange Commission (SEC) may have faced political pressure due to their lack of engagement with ETF applicants.
Balchunas also mentioned that the SEC has reportedly requested exchanges such as the NYSE and Nasdaq to update their filings, although there has been no official confirmation from the regulator. However, Nate Geraci, co-founder of the ETF Institute and president of the ETF Store, stated that the final decision regarding the registration requirement for individual funds (S-1s) is still pending.
Geraci explained that the SEC could approve the exchange rule changes (19b-4s) separately from the fund’s registration (S-1), which could potentially delay the decision beyond the May 23 deadline for VanEck’s Ethereum spot ETF request. This would allow the regulator more time to review and approve the documents, considering the complexities and risks associated with proof-of-stake (PoS) cryptocurrencies.
The impending decision on spot Ethereum ETFs has significantly increased interest in the weekly and monthly ETH options expiries. At Deribit, the leading derivatives exchange, the open interest for Ether options on May 24 is $867 million, while on May 31 it reaches an impressive $3.22 billion. In comparison, CME’s monthly ETH options open interest is only $259 million, with OKX at $229 million.
The call-to-put ratio at Deribit heavily favors call (buy) options, indicating that traders have been more active in purchasing them than put (sell) options. If Ether’s price remains above $3,600 on May 24, only $440,000 of the put instruments will be involved in the expiry. This means that the right to sell ETH at $3,400 or $3,500 becomes irrelevant if the price is above these levels.
On the other hand, holders of call options up to $3,600 will exercise their right, securing the price difference. This scenario results in a substantial $397 million open interest favoring the call options if ETH remains above $3,600 at the time of the weekly expiry.
The stakes are even higher for the monthly ETH expiry on May 31, as 97% of the put options are priced at $3,600 or lower, rendering them worthless if Ether’s price exceeds this threshold.
Bullish strategies have greatly benefited from ETH’s rally above $3,600. Although the final outcome is unlikely to reach the potential $3.22 billion open interest, it will still heavily favor call options. For example, if Ether’s price reaches $4,550 on May 31, the net open interest will favor call options by $1.92 billion. Even at $4,050, the difference remains favorable to the call options by $1.44 billion.
It’s important to note that traders could have sold put options to gain positive exposure to Ether once it surpasses a certain price. Similarly, sellers of call options benefit when the price of ETH falls, and more complex strategies can be implemented with different expiry dates. However, estimating the effect of these strategies is not straightforward.
Ultimately, the unexpected 18% increase in Ether’s price caught option traders off guard, providing significant benefits to bullish strategies. These profits are likely to be reinvested, maintaining the positive momentum for Ether’s price following the expiry.
Please note that this article does not provide investment advice or recommendations. Every investment and trading decision involves risk, and readers should conduct their own research before making a decision.