Ether (ETH) the bulls are probably very satisfied with the 368% gains accumulated so far in 2021 and it seems like not a day goes by that the altcoin doesn't hit a new all-time high.
Even with Ether on the way to $ 5,000, there are still many concerns about the network's ability to absorb the strong demand coming from the decentralized finance (DeFi) and non-fungible token (NFT) sector.
Another possible setback looming is the United States Treasury. report on the regulation of the stable currency published on November 1. The report emphasized the need for Congress to "ensure consistent and comprehensive appropriate federal prudential oversight."
In addition to this, competing networks offering interoperability with major DeFi projects have been gaining adoption, both in total blocked value (TVL) and smart contract market share. As an example, this week Solana (SOL) rallied to a new high of $ 236, surpassing Cardano (ADA) to become the fourth largest cryptocurrency.
According to data from CryptoSlam, secondary sales of Solana NFT Markets reached $ 495 million in the last three months, but despite this, the Ethereum blockchain remains the most popular, with secondary NFT sales surpassing $ 1.76 billion in October.
By managing to stay ahead of the competition and create a path to solving the scalability problem by migrating to a proof-of-stake network, Ethereum has attracted some major investors. This includes the owner of the Dallas Mavericks Mark Cuban, the Houston Fire Relief and Retirement Fundand billionaire Barry Sternlicht.
The expiration of the $ 540 million Ether options on Nov. 5 may seem like an undisputed win for the bulls, but this was not the case a couple of weeks ago.
At first glance, the $ 300 billion put options dominate the weekly expiration by 20% compared to the $ 240 million call instruments. Still, the 0.80 call-put ratio is misleading because the recent rally will likely wipe out most of the bearish bets.
For example, if the price of Ether sustains above $ 4,500 at 8:00 am UTC on November 5, only $ 1.5 million of those put options will be available at expiration. There is no value in the right to sell Ether at $ 4,500 if it trades above that price.
Bulls are comfortable above $ 4,500
Below are the four most likely scenarios for the maturity of $ 540 million on November 5. The imbalance that favors each side represents the theoretical benefit. In other words, depending on the expiration price, the number of call (buy) and put (sell) contracts that are activated varies:
- Between $ 4,300 and $ 4,400: 6,870 calls versus 6,000 puts. The net result is balanced between bulls and bears.
- Between $ 4,400 and $ 4,600: 13,750 calls vs. 350 put options. The net result is $ 60 million in favor of call instruments (bullish).
- Between $ 4,600 and $ 4,700: 18,500 calls versus 50 put options. The net result is $ 85 million in favor of call (bull) instruments.
- Above $ 4,700: 22,800 calls versus 0 put options. The net result is complete dominance, with the bulls making $ 107 million.
This gross estimate considers call options that are used in bullish bets and put options exclusively in neutral to bearish operations. However, this oversimplification ignores more complex investment strategies.
For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price. But, unfortunately, there is no easy way to estimate this effect.
Bears need a 6% price correction to cut their losses
The only way the bears can avoid losses on Friday's expiration is by pushing the price of Ether below $ 4,400 on November 5, down 6% from the current $ 4,660. So unless some worrisome news or events are announced before the weekly options deadline, the bulls are likely to make gains of $ 85 million or more.
Traders should also keep in mind that during bull runs, the amount of effort a seller takes to hit the price is immense and generally ineffective. Currently, data from the options markets points to a considerable advantage of call options, which drives bullish bets for Ether and this raises expectations for a rally to $ 5,000.
The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement involves risk. You should do your own research when making a decision.
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