Since the beginning of the week, Ether (ETH) has gained more than 17% and the gains appear to be related to the increase in the use of stablecoin and the increase in DeFi applications.
As reported by Cointelegraph, the use of the Ethereum network surpassed Bitcoin, doubling the volume established during the entire 2019.
Another possibly bullish factor at the bottom is the Ethereum 2.0 final testnet scheduled for August 4. This seems to have investors in a good mood, despite the current increase in gas rates. Over the past week, investors rushed to the options markets, sending Ether’s open interest to a record $ 230 million.
ETH options open interest. Source: biased
Oddly enough, some of these options hit an impressive $ 720 strike by the December 25 expiration, which is quite optimistic given that it requires a 160% rise.
6,000 of those call options were traded today and another 6,000 call options were traded as of September 25, with strikes ranging from $ 400 to $ 880. These deals added more than $ 3.2 million in open interest.
Ether over $ 400 at expiration seems unlikely
What exactly are the odds on current bets based on Black & Scholes’ option pricing model? The Deribit exchange presents this information as ‘delta’ and these are the percentage based probabilities for each hit considering the current implied volatility.
ETH December 25 delta call options. Source: Deribit
Based on the above data, the $ 400 strike for December has a 34% chance of occurring, while the more negotiated $ 720 strike has a fairly small 11% chance under the option pricing model.
For this reason, the price paid for each $ 720 contract has been around 0.025 Ether. The 6,050 options traded today have cost buyers just $ 42,000, but increased open interest by $ 1.7 million.
September expiration has even less chance
With just over two months to maturity in September, traders’ $ 400 ETH optimism odds are less likely.
ETH September 25 delta call options. Source: Deribit
The same $ 400 strike now attracts an odd 18% according to the Black & Scholes pricing model, while the staggering $ 720 expiration is only 3%.
As shown above, options for the September maturity are trading below ETH 0.03 each, so they shouldn’t carry the same weight as more modest optimistic attacks.
Put-call relationships can be misleading
Investors should pay less attention to open interest option holders who hit all-time highs and focus more on the prices paid for such options. These unlikely hits above $ 400 also affect the indicators, including the put / call ratio.
ETH put / call ratio options. Source: biased
On July 22, ETH’s open buy / sell interest was 0.84, favoring call options by 16%. Despite its bullish reading, this number could have been inflated by Buy-Out-of-Money (OTM) options, presenting little chance.
Futures markets provide better indicators
A better way to measure the appetite of professional investors is contango. This involves measuring the premium on longer-term future contracts versus the current price of Ether (ETH).
ETH annualized futures base. Source: biased
Such an indicator, also known as a base, recently reached an impressive 12% annualized rate. Sustained periods above 10% are infrequent, and were last seen on March 8, just before Ether started a substantial correction on Bloody Monday when Bitcoin fell below $ 8,000.
Despite the odds, the bulls could be on to something
Is the excessive optimism caused by the burgeoning DeFi industry causing investors to buy call options with fairly low odds aggressively?
Chances are yes, but there is currently no way to determine if maturities above $ 400 for September and December are off the table.
The views and opinions expressed here are solely those of the author and do not necessarily reflect Cointelegraph’s views. Every investment and commercial movement involves risk. You must do your own research when making a decision.
