Ethereum price drops below $ 1.8K support as bears prepare for expiration of $ 1B options on Friday

Ethereum price drops below $ 1.8K support as bears prepare for expiration of $ 1B options on Friday – Mail Bonus

The success of Ether (ETH) over the past three months has been less than satisfactory for holders and the 50% correction since April 3 caused altcoin to test the $ 1,800 support for the first time since July 2021.

Ether / USD 1-day card in Kraken. Source: TradingView

Due to stock volatility, investors had sought refuge in the US dollar and on May 13 the DXY index reached its highest level in 20 years. The DXY measures the USD against the basket of major foreign currencies, including the British Pound (GBP), the Euro (EUR) and the Japanese Yen (JPY).

In addition, the five-year US Treasury yield returned to its highest level since August 2018, reaching 3.10% on May 9, indicating that investors are demanding higher returns to offset inflation. In a nutshell, macroeconomic data reflect investor risk aversion and this partly explains Ether’s downturn.

Further creating panic among Ether traders was the seven-block chain restructuring of Ethereum’s Beacon Chain on May 25th. A valid business order was knocked off the chain because the competition block received more support from the network participants. Fortunately, this condition is not uncommon and it could have come from a miner with a lot of resources or flaws.

The main victims of Ether’s 11% price correction were long-term traders who saw $ 160 million in total derivatives trading, according to Coinglass.

The Bulls placed their bets at $ 2,100 and above

The open interest rate before the end of Ether’s monthly options in May is $ 1.04 billion, but the real figure will be much lower as bulls were too optimistic. These traders may have been fooled by the short-term pump up to $ 2,950 on May 4 because their bets for the May 27 options expire in excess of $ 3,000.

The drop below $ 1,800 came as a surprise to cattle because almost none of the call (buy) options before May 27 have been put below that price level.

Ether options gather open interest rates before May 27. Source: CoinGlass

The 0.94 purchase ratio shows a slight advantage over USD 540 million in open interest against the USD 505 million option. Nevertheless, with Ether close to $ 1,800, every bullish bet is likely to be worthless.

If Ether’s price stays below $ 1,800 at 8:00 UTC on May 27, none of the $ 505 million stock options will be available. This difference occurs because the right to buy Ether at $ 1,800 or higher is worthless if Ether trades below that level when it expires.

The Bears are aiming for a profit of 325 million dollars

Below are three most likely situations based on current pricing action. The number of option contracts available on May 27 for the purchase (bull) and sale (bear) of instruments varies, depending on the depreciation price. The imbalance in favor of each party forms a theoretical gain:

  • Between $ 1,600 and $ 1,700: 0 calls against 230,000 sets. Net income supports the sale of bear instruments by $ 370 million.
  • Between $ 1,700 and $ 1,800: 50 calls against 192,300 sets. The net profit of the bears is about 325 million dollars.
  • Between $ 1,800 and $ 2,000: 3,300 calls against 150,000 sets. Net income supports the sale of bear instruments by $ 280 million.

This rough estimate takes into account put options used in bearish betting and call options only in neutral to bullish trades. Nevertheless, this oversimplification avoids more complex investment methods.

For example, a trader may have sold a put option and actually received a positive risk for Ether above a certain price, but unfortunately there is no easy way to assess this effect.

Taurus should throw in the towel and focus on the end of June

The Eter bears need to keep prices below $ 1,800 on May 27 to secure a $ 325 million profit. On the other hand, the best scenario of the bulls requires pushing over $ 1,800 to reduce the damage by $ 45 million.

Ether bulls had $ 160 million in indebted long-term debt that ended on May 26, so they should have lower margins to drive prices higher. That said, the bears will no doubt try to suppress Ether below $ 1,800 before the options expire on May 27.

The views and opinions expressed herein are theirs alone author and do not necessarily reflect the views of Cointelegraph. Every investment and business involves risk. You should do your own research when making a decision.