Ethereum Surges on ETF Rumor: ETH Options Market Insights

On May 20, the price of Ether (ETH) saw a remarkable surge of over 18%, following a noteworthy update from Eric Balchunas, a senior analyst at Bloomberg. Balchunas revised the approval odds for the Ethereum exchange-traded fund (ETF) significantly upwards, from 25% to 75%. He cited potential political pressure on the United States Securities and Exchange Commission (SEC), which previously appeared somewhat disengaged with ETF applications. Balchunas also indicated that the SEC is in discussions with exchanges such as the NYSE and Nasdaq to amend their filings, even though official confirmation from the regulator is still pending.

Adding further context, Nate Geraci, co-founder of the ETF Institute and president of the ETF Store, remarked that the final decision regarding the registration requirement for individual funds (S-1s) is still pending. Geraci explained that the SEC might approve the exchange rule changes (19b-4s) separately from the fund’s registration (S-1). This separation could effectively extend the review period beyond the May 23 deadline for VanEck’s Ethereum spot ETF request, giving the regulator more time to evaluate the intricate details and risks associated with Proof-of-Stake (PoS) cryptocurrencies.

As the market anticipates the SEC’s ruling on the spot Ethereum ETF, interest in the upcoming ETH options expiries has intensified. Ether options open interest for May 24 on Deribit, the leading derivatives exchange, is about $867 million. For May 31, this figure balloons to an impressive $3.22 billion. In contrast, CME’s monthly ETH options open interest is much lower at $259 million, and OKX follows at $229 million.

A key indicator, the call-to-put ratio at Deribit, heavily favors call (buy) options. This reveals that traders have been more inclined to purchase call options over put (sell) options. If Ether’s price remains above $3,600 on May 24 at 8:00 a.m. UTC, only around $440,000 worth of put options will be involved in the expiry. Essentially, the right to sell ETH at $3,400 or $3,500 becomes irrelevant if its market price is above these levels. Holders of call options up to $3,600 will exercise their rights, securing the price difference, resulting in a substantial $397 million open interest favoring the call options.

The stakes are even higher for the monthly ETH expiry on May 31. A staggering 97% of the put options are priced at $3,600 or lower, making these options worthless if ETH’s price surpasses this threshold. This potential outcome is a significant win for bullish strategies, which have profited immensely from ETH’s rally above $3,600.

Even though the final result for open interest may fall short of the potential $3.22 billion, the scenario still strongly favors the call options. For instance, if Ether’s price hits $4,550 on May 31, the net open interest would favor call options by $1.92 billion. At a slightly lower price of $4,050, the difference still remains favorable by $1.44 billion. Traders employing more complex strategies, like selling put options to gain positive exposure or selling call options to benefit when ETH’s price falls, face a convoluted but potentially profitable landscape.

Ether’s unexpected 18% increase has notably caught option traders off guard, priming the market for substantial profits on bullish strategies. These gains are likely to be reinvested, thus sustaining the upward momentum. This trend is promising for Ether’s price trajectory post-expiry, suggesting an optimistic outlook for the cryptocurrency.