Over the past two months, the open interest on Ether options increased by 50% to reach $3.1 billion as ETH price gained 44% in that time period. Ether’s price appreciation and the rising options open interest resulted in a potentially historic $1.15 billion expiry set for March 26.
Most exchanges offer monthly exposures, although a few also hold weekly options for short-term contracts. February 2021 faced the most significant expiry on record with $630 million worth of option contracts and this figure represented 23% of all the open interest at that time.
The above data shows that Ether’s March 26 expiry holds 631,000 ETH contracts. That unusual concentration translates to 39% of its open interest set to expire in eight days.
It is worth noting that not every option will trade at expiry as some of those strikes now sound unreasonable, especially considering there is roughly a week left.
Not all option are alike
Unlike futures contracts, options are divided into two segments. Call (buy) options allow the buyer to acquire Ether at a fixed price on the expiry date. Generally speaking, these are used on either neutral arbitrage trades or bullish strategies.
Meanwhile, the put (sell) options are commonly used as hedge or protection from negative price swings.
To understand how these competing forces are balanced, one should compare the calls and put options size at each expiry price (strike).
Options markets are an all-or-nothing game, meaning they either have value or become worthless if trading above the call strike price, or the opposite for put option holders.
Therefore, by excluding the neutral-to-bearish put options 20% below the current $1,800 price and the call options above $2,160, it is easier to estimate the potential impact of next Friday’s expiry. Incentives to pump or dump the price by more than 20% become less likely as the potential gains will seldom surpass the cost.
This data leaves $160 million worth of call options from $1,000 to $2,160 strikes for the aggregate options expiry on March 26. Meanwhile, the more bearish put options down to $1,440 amount to $95 million. Therefore, there’s a $65 million imbalance favoring the more bullish call options.
Bulls may emerge after this month’s expiry
While a $1.15 billion options expiry could be worrisome, nearly 56% of them are already deemed worthless. This has been caused by excessive optimism from call option buyers above $2,160 and the recent Ether price increase resulting in the annihilation of neutral-to-bearish puts.
As for the remaining open interest, bulls are mainly in control because the recent price hike to $1,800 obliterated 83% of the bearish options.
As the expiry comes closer, a growing number of put options will lose their value if Ether remains at the current levels, increasing the advantage of the neutral-to-bullish call options.
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