With no short-term solution in sight to rising network costs, some investors are concerned that Ether (ETH) price may be corrected. The EIP-1559 proposal will be bundled with the imminent one London upgrade, and this will change the gas fee structure, but until then, traders have to deal with high fees.
The flexible block size proposal aims for a more predictable fee pricing model, but this upgrade is scheduled for July, meaning Ether could come under pricing pressure in the near term. Additionally, miners have raised concerns as the new proposal aims to burn some of the fees to create scarcity, reducing their income by as much as 50%.
To prepare for downturns, professional traders usually buy protective put options without narrowing their positions, especially those farms and stakes with high yields. While these are generally expensive for longer periods, the trades on some exchanges are also offered on a weekly or biweekly basis.
The put-to-call ratio favors bears, but there’s more to it
Unlike futures contracts, options are divided into two segments. Call (buy) options allow the buyer to purchase Ether at a fixed price on the expiry date. Generally, these are used for neutral arbitrage trades or bullish strategies.
Meanwhile, the put (sell) options are often used as a protection against negative price movements.
To understand how these competing forces balance, one must compare the size of the calls and put options at each expiration price (strike).
For those unfamiliar with options strategies, Cointelegraph recently explained how minimize losses despite maintaining a bullish position
The data above shows that Ether’s April 9 expiration date includes 77,800 Ether contracts, worth $ 161 million at the current $ 2,070 level. Meanwhile, the call put ratio favors the more bearish put options at 11% and dominates strikes below USD 1,850. Meanwhile, bullish call options have hustled the scene above the USD 1,900.
Despite the imbalance, the net impact tends to be bullish
Options markets are an all-or-nothing game, meaning that they either have value or become worthless if they trade above the strike price of the call, or the opposite for put option holders.
By excluding the neutral to bearish put options 25% below the current price of USD 2,070 and the call options above USD 2,480, it is therefore easier to estimate the potential impact of next Friday’s expiration. Incentives to pump or dump the price by more than 25% become less likely because the potential benefits will rarely exceed costs.
This selection lures up to 33,000 call options from $ 1,200 to $ 2,480 strikes, currently worth $ 68 million. Meanwhile, the more bearish put options up to $ 1,580 add up to 18,100 Ether contracts worth $ 37 million. Therefore, buyers have a small advantage before the expiration of April 9.
The balance between call and put options initially showed a call-to-put ratio that favored the more bearish put options. Nevertheless, by excluding the put options 25% below the current price, the net result is clearly in favor of bulls. This reinforces the view that the April 9 expiration should not be viewed as bearish.
The views and opinions expressed here are solely those of the author and do not necessarily reflect Cointelegraph’s opinion. Every investment and trade move carries risks. You should do your own research when making a decision.