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Ethereum traders expect volatility ahead of Friday’s $820M options expiration

Ether (ETH) will face a significant $820 million monthly option expiration on Friday, August 27th. This will be the first time that options at $3,000 and higher will have a real fighting chance, even if the bulls miss a decent opportunity to dominate. ended because they were too optimistic about the price potential of Ether.

It is unclear why the $140 million neutral-to-bullish call options were placed between $3,800 and $8,000, but these instruments will become worthless as monthly expiration approaches.

Competition and success of interoperability-focused protocols affect the price of Ether

The Ethereum network has struggled because of its success, which leads to frequent network congestion and transaction fees of $20 and above. Furthermore, the rise of non-fungible tokens and decentralized finance put further pressure on the network.

Maybe some of the influx that was supposed to drive up the price of Ether went to its competitors, which did a great job recently. For example, Cardano (ADA) rose more than 100% quarter-on-date as investors expected its long-awaited smart contract launch on September 12th.

Solana (SOL), another smart contract competitor, captured one-third of inflows into crypto investment products last week, according to CoinShares “Digital Asset Fund Flow Weekly.”

Finally, layer-two scaling solutions such as Polygon (MATIC) also saw 150% gains after successfully bringing DeFi projects into their interoperability pool and launching a Decentralized Autonomous Organization (DAO) to scale projects on a software development kit Is.

Ether options total open interest for Aug 27. Source: Bybt.com

Note that the $3,000 level at Friday’s expiration is largely dominated by 30,900 ETH options contracts, representing $100 million in open interest.

Preliminary call-to-put analysis shows a slight prevalence of neutral-to-bullish call instruments with a large open interest of 13%. However, the bears seem to be in for a surprise as 83% of their bets are placed on $2,900 or less.

To be successful, the bears need to reach $2,900. Need to push and maintain Ether price below

About half of the neutral-to-bullish call options have an expiration price of $3,500 or more. If Ether trades below that price on Friday, these instruments will be worthless. The option expires at 8:00 AM UTC, so traders can expect some price volatility near the event.

Below are the three most likely scenarios that will likely occur and their estimated gross outcome. Keep in mind that some investors may trade more complex strategies, including market-neutral ones that use calls and protective puts. As a result, this estimate is somewhat elementary.

The simple analysis weighs the call (buy) options against the put (sell) options available at each strike level. So, for example, if Ether expires at $3,050, every neutral-to-bullish call option above $3,000 becomes void.

  • Below $2,900: 36,360 Call vs 32,700 Put. The net result is virtually balanced.
  • Between $2,900 and $3,000: 36,770 call vs 20,320 put. The net result supported neutral-to-bullish instruments by $48 million.
  • Between $3,000 and $3,200: 55,660 call vs 8,320 put. The net result supported neutral-to-bullish instruments by $147 million.
  • Above $3,200: 62,260 Calls vs. 1,490 Puts. The net result supported neutral-to-bullish instruments by $197 million.

Bears will try to cover losses, and fortunately, honeypot for a favorable price move for them does not seem worth a significant effort of bulls.

As far as overly optimistic options traders are concerned, they should better reconsider their strategy for the end of September. The Ethereum network appears to be its own worst enemy as increasing adoption has fueled the growth of competitors’ decentralized finance applications.

The views and opinions expressed here are solely those of Author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.

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