On May 20th, the price of Ether (ETH) experienced a significant surge of over 18% following a statement from Eric Balchunas, a senior analyst at Bloomberg. Balchunas raised the likelihood of approval for an Ethereum exchange-traded fund (ETF) from 25% to 75%. He suggested that the United States Securities and Exchange Commission (SEC) may have faced political pressure due to their previous lack of engagement with ETF applicants.
Balchunas also revealed that the SEC is reportedly requesting exchanges like the NYSE and Nasdaq to update their filings, although there has been no official confirmation from the regulator. However, Nate Geraci, co-founder of the ETF Institute and president of the ETF Store, highlighted that the final decision on the registration requirement for individual funds (S-1s) is still pending.
Geraci explained that the SEC could potentially approve the exchange rule changes (19b-4s) separately from the fund’s registration (S-1), which could result in a delay beyond the May 23rd deadline for VanEck’s Ethereum spot ETF request. This extra time would allow the regulator to carefully review and approve these documents, considering the complexities and risks associated with proof-of-stake (PoS) cryptocurrencies.
The impending decision on spot Ethereum ETFs has generated significant interest in the weekly and monthly ETH options expiries. At the leading derivatives exchange, Deribit, the open interest for Ether options on May 24th is recorded at $867 million, while for May 31st, 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. If Ether’s price remains above $3,600 on May 24th at 8:00 am UTC, only $440,000 of the put instruments will be involved in the expiry. This renders the right to sell ETH at $3,400 or $3,500 irrelevant if it trades above these levels.
On the other hand, holders of call options up to $3,600 will exercise their right and secure 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 31st, with 97% of the put options priced at $3,600 or lower, making them worthless if Ether’s price exceeds this threshold.
Bullish strategies have greatly benefited from ETH’s rally above $3,600. Although the final outcome is expected to be different from the potential $3.22 billion open interest, it will still significantly favor the call options. For example, if Ether’s price reaches $4,550 on May 31st, 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.
It’s important to note that traders have the option to sell put options to gain positive exposure to Ether once it surpasses a certain price. Similarly, sellers of call options benefit when the price of ETH falls, and more complex strategies can be implemented using various expiry dates. However, estimating the effect of these strategies is not straightforward.
Ultimately, the unexpected 18% increase in Ether’s price caught option traders by surprise, setting the stage for significant gains in bullish strategies. These profits are likely to be reinvested to maintain positive momentum, which is a positive sign for Ether’s price following the expiry.
Please note that this article does not provide investment advice or recommendations. All investment and trading decisions involve risks, and readers should conduct their own research before making any decisions.