4 reasons why Ethereum options traders expect ETH price to reach $880
Ether (ETH) price has gained 88% since November, astonishing even the most bullish investors as the top altcoin secured a 2020 high at $750.
Aside from the upcoming CME ETH futures launch scheduled for Feb. 8, the phenomenal growth of the total value locked (TVL) in Decentralized Finance protocols also played a major part.
As the above data indicates, investors are even more confident that Eth2 has been a success, despite the real potential of delays and implementation hurdles.
Another possible bullish factor in the background is the recent 2 year low in ETH miner balances. This certainly eases potential sell pressure and opens room for further bullish continuation.
Over the past three months, the open interest on Ether options grew by 150% to a total of $880 million. This incredible build-up occurred as the cryptocurrency broke the $700 resistance, and reached its highest price since May 2018.
Ether options open interest. Source: Crytorank.io
The put-call ratio flipped bullish
By measuring whether more activity is going through call (buy) options or put (sell) options, one can gauge the overall market sentiment. Generally speaking, call options are used for bullish strategies, whereas put options for neutral to bearish ones.
Ether options open interest put/call ratio. Source: Cryptorank.io
Despite the recent price rally, the put/call ratio has gone down considerably. This move indicates that the more bullish call options have been dominating volumes. One should expect precisely the opposite whenever traders lock in profits or prepare for a potential downside.
That’s a striking contrast to the 0.94 level two weeks ago, which indicated that put options were well balanced with the neutral to bullish call options.
Options data shows traders expect another 20% hike to $880
The odds of the current option trades are calculated according to the Black & Scholes model. Deribit exchange presents this information as ‘delta’. In short, these are the percent-based odds for each strike.
Ether Jan. 29 call options delta. Source: Deribit
According to the above data, the $880 strike for Jan. 25 has a 34% chance of occurring, while the most traded $960 strike holds a 25% odd according to the options pricing model.
Take notice that the statistical model tends to be overly conservative, as even the $720 strike holds a mere 59% odd.
The March expiry is also extremely bullish
With 86 days left until March 2021 expiry, the odds of Ether price topping $880 is even more likely.
The same $880 strike now has a 49% odd according to the Black & Scholes pricing model, whereas the staggering $1,120 expiry holds 33%.
As shown above, the options for March 2021 are trading a relevant amount of volume and cost $114 apiece. This data is indisputable evidence of traders’ bullish sentiment.
Futures market data reflects bullish sentiment
An even better way to gauge professional investors sentiment toward the market is to analyze the futures markets premium. This is measured by the difference between longer-term future contracts and the current Ether (ETH) spot price.
The chart above shows that the indicator peaked at 5.8% on Dec. 19 and it reached the same level again on Dec. 28 as Ether price made a multi-year high. A sustained futures premium above 3.5% reflects optimism, although it is far from excessive.
The current 4.3% rate is equal to an 18% annualized premium and is significantly higher than the levels seen in previous months. This shows that despite reaching a swing high at $750 levels, professional traders remain confident in Ether’s future potential.
It might be too soon to determine whether the derivatives market will reduce its optimism, but for the moment, bulls seem to be fully in control.
While there is always the possibility of a correction in Ether price, it is unlikely to be strong enough to cause havoc as the market is not showing any signs of excessive optimism.
