Ether (ETH) investors have no reason to complain after gains of 344% accumulated in 2021 through November 24th. Still, analysts fear the $4,000 stress test on Nov. 19 is forming a downward channel that targets $3,600 in mid-December, an 18% correction from the current price of $4,400.
Despite outperforming Bitcoin (BTC) by 16% last month alone and the ETH/BTC pair climbing to 10-week highs, Ether appears to be struggling with its own success.
Users continue to complain about Ethereum gas rates averaging more than $45 over the past three weeks. As problematic as it is, it leaves no doubt that the largest markets for decentralized finance (DeFi) and non-fungible tokens (NFT) continue to thrive on Ethereum.
I tried to buy something for $5 using eth.
Gas fees are $480.45.
How sure are we that an Airbnb Product Manager is not the creator of Ethereum? pic.twitter.com/G35F0o6keO
– Chris Bakke (@ChrisJBakke) November 17, 2021
Growing regulatory uncertainty in the United States remains a decisive limiting factor for the Ether rally. On Nov. 24, the Securities and Exchange Commission, or SEC, clarified that the crypto panel at the public meeting scheduled for Dec. 2 would focus on the regulatory framework.
Not even the million ETH burnt since implementing EIP-1559 in August has been enough to keep the price of Ether at historic highs. As the network emits about 5.4 million ETH per year, Ether remains an inflationary asset. Still, the price of Ether has increased 16% against Bitcoin since Oct. 25, partially reflecting this impact.
Call options dominate ETH options expiration on November 26
Despite the 10% correction to $4,400 from the November 10th high of $4,850, Ether calls largely dominate the November 26th expiration.
The green area representing the $820 million call options is the majority of the November 26 expiration. In comparison with the put instruments of US$ 440 million, there is a difference of 87%.
However, the call-to-put ratio of 1.87 shouldn’t be taken literally, as the recent drop in ETH will likely eliminate 77% of upside bets. For example, if the price of Ether remains below $4,400 at 8:00 UTC on November 26, only $165 million of these call options will be available at expiration.
In other words, what’s the point of having the right to buy Ether for $4,400 or $4,600 if it’s trading below that price?
Bears need ETH at less than $4,200 to balance the scales
Below are the three most likely scenarios based on current price action. The number of option contracts available on November 26 for bulls (call) and bear (put) instruments varies according to the expiry price of the ETH. The imbalance that favors each side constitutes the theoretical profit:
- Below US$4,100: 15,400 calls against 15,200 puts. The result is balanced.
- Between US$4,200 and US$4,500: 38,400 calls against 8,800 puts. The net result is US$ 130 million favoring purchase instruments (call).
- Above US$4,500: 50,200 calls against 2,300 puts. The net result favors purchase instruments (call) by US$ 215 million.
This rough estimate considers call options being used in bullish bets and puts exclusively in bearish neutral trades. Still, this oversimplification disregards more complex investment strategies.
For example, a trader could have sold a put option, effectively gaining positive exposure to Ether above a specific price. But unfortunately, there is no easy way to estimate this effect.
Both sides have incentives to move prices
Bears need a 7.5 percent move from $4,400 to less than $4,100 to balance the balance and avoid a $130 million loss. On the other hand, bulls need a 2.3 percent price increase to $4,500 to boost their profits by $85 million.
Traders should consider that the amount of effort a seller needs to push the price is immense and often ineffective during bull markets. Currently, options market incentives are balanced, favoring the $4,200 to $4,500 price range, giving bulls the right to a $130 million profit on Friday, November 26th.
The views and opinions expressed here are exclusively of the author and do not necessarily reflect the views of the Cointelegraph. Every investment and trading movement involves risk. You must conduct your own research when making a decision.
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