Ethereum price soars on spot ETF rumor — How are ETH options markets positioned?

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On May 20, the price of Ether (ETH) surged over 18% after Eric Balchunas, a senior analyst at Bloomberg, raised the approval odds for the Ethereum exchange-traded fund (ETF) from 25% to 75%. Balchunas noted that the United States Securities and Exchange Commission likely faced political pressure, as their previous position showed little engagement with ETF applicants.

Source: Eric Balchunas

Balchunas further mentioned that the SEC is reportedly asking exchanges like the NYSE and Nasdaq to update their filings, although there has been no official confirmation from the regulator. Nonetheless, Nate Geraci, co-founder of the ETF Institute and president of the ETF Store, stated that the final decision is still pending regarding the registration requirement for individual funds (S-1s).

Source: Nate Geraci

According to Geraci, the SEC could approve the exchange rule changes (19b-4s) separately from the fund’s registration (S-1), which could technically be delayed beyond the May 23 deadline for VanEck’s Ethereum spot ETF request. This allows the regulator additional time to review and approve these documents, considering the complexities and risks associated with structures involving Proof-of-Stake (PoS) cryptocurrencies.

Analyzing the impact on the upcoming $3 billion ETH options expiry

The impending decision on the spot Ethereum ETF has significantly heightened interest in the weekly and monthly ETH options expiries. At Deribit, the leading derivatives exchange, Ether options open interest for May 24 is recorded at $867 million, while for May 31, it reaches an impressive $3.22 billion. In comparison, CME’s monthly ETH options open interest stands at just $259 million, with OKX at $229 million.

The call-to-put ratio at Deribit heavily favors the call (buy) options, indicating that traders have been more active in purchasing them than the put (sell) options.

Deribit May 24 ETH options open interest, in ETH terms. Source: Deribit

If Ether’s price stays above $3,600 on May 24 at 8:00 a.m. UTC, only $440k of the put instruments will be involved in the expiry. Essentially, a right to sell ETH at $3,400 or $3,500 becomes irrelevant if it trades above these levels.

Meanwhile, the holders of call options up to $3,600 will exercise their right, securing the price difference. This scenario results in a substantial $397 million open interest favoring the call options if ETH remains above $3,600 at the time of the weekly expiry.

The stakes are even higher for the monthly ETH expiry on May 31, as 97% of the put options are priced at $3,600 or lower, rendering them worthless if Ether’s price exceeds this threshold.

Bullish strategies vastly benefited from ETH’s rally above $3,600

Deribit May 31 ETH options open interest, in ETH terms. Source: Deribit

Although the final outcome will likely be far from the potential $3.22 billion open interest, it will significantly favor the call options. For instance, if Ether’s price reaches $4,550 on May 31, the net open interest will favor call options by $1.92 billion. Even at $4,050, the difference remains favorable to the call options by $1.44 billion.

Related: SEC rumored to be reconsidering spot Ether ETF denial, say analysts

It’s important to highlight that a trader could have sold a put option, thereby gaining positive exposure to Ether once it surpasses a certain price. Likewise, a seller of a call option benefits when the price of ETH falls, and more intricate strategies can be implemented using various expiry dates. Unfortunately, estimating this effect is not straightforward.

Ultimately, Ether’s unexpected 18% increase took option traders by surprise, setting the stage for a substantial benefit to bullish strategies. These profits are likely to be reinvested to maintain the positive momentum, which bodes well for Ether’s price following the expiry.