Over the past 40 days, Ethereum (ETH) has been trending slightly higher, mostly in a narrow channel. It briefly rallied to $4,000 in the first week of September, but a subsequent plunge took it into an upward channel.
Ethereum price on Bitstamp. Source: TradingView
In August, record-breaking NFT transactions clogged the Ethereum network, causing average transaction fees to exceed $40 in early September. While NFT transaction volume continues to decline, new projects continue to be minted every minute, whether they are traded or not.
On September 13, Cathie Wood, CEO of U.S.-based asset management firm Ark Invest, commented that Ark’s cryptocurrency allocation targets 60% Bitcoin and 40% Ethereum allocation. Ark Invest holds related positions in shares of Coinbase (COIN) and Grayscale Bitcoin Trust (GBTC). Additionally, Wood has been a long-time supporter of Bitcoin.
On September 14, Solana, Ethereum’s biggest competitor, suffered a seven-hour offline. A sudden surge in transaction volume paralyzes the network.
Another incident occurred on the same day, 45 minutes after Arbitrum One, Ethereum’s Layer 2 aggregation network, went offline. The team attributed the outage to the large number of transactions submitted to the Arbitrum sequencer in a short period of time.
Bitcoin options cumulative open interest for September 3. Source: Bybt.com
These events demonstrate the importance of the ETH 2.0 upgrade, which will bring parallel processing and drastically reduce transaction fees. Oddly, Ethereum also faces a high number of invalid block sequences from malicious entities. However, the vast majority of web clients rejected the attack, making it unsuccessful.
As the chart above shows, bears were caught off guard with 95% of bearish (sell) instruments at $3,500 or lower. Therefore, if ETH remains above that price on September 17, only $8 million worth of neutral-to-bearish puts will be exercised at expiration.
A put option is the right to sell bitcoin at a predetermined price on a set expiration date. So, if ETH is still above that price at 8:00 AM UTC on September 17th, the $3,000 put option becomes worthless.
The call/put ratio of 0.95 represents the tiny difference between $173 million worth of calls (buy) options and $181 million worth of puts (sells). This chart requires a more detailed analysis and some bets are far-fetched given the current level of $3500.
For example, if Ethereum’s expiry price on September 17 is $3,300, every call option above that price becomes worthless. In this case, the right to buy ETH at $3700 would be worthless.
Below are the four most likely scenarios considering the current price of Ethereum. An imbalance in favor of either party represents a theoretical profit after maturity. The data below shows how many contracts will be executed on Friday, depending on the expiration price:
Between $3,100 and $3,300: 2,100 calls versus 20,300 puts. The net result is $58 million in favor of protective put instruments.
Between $3300 and $3500: The net result is a balance between shorts and longs.
Between $3,500 and $3,700: 17,600 calls versus 2,300 puts. The net result is $55 million in favor of the call option.
Above $3,700: 17,600 calls versus 2,300 puts. The net result was $85 million in favor of calls.
This original estimate takes into account that calls are only used for bullish strategies and puts are only used for neutral to bearish trades. However, investors may use more complex strategies, which often involve different maturities.
At weekly option expirations, buyers and sellers are exposed to small gains from ethereum price movements to boost their returns. It'll be interesting to see whether it makes it to $3,500 -- things could go one of two ways.
To put that in perspective, ETH monthly options expiring on September 24 currently have $1.6 billion in open interest. As such, both parties may be concentrating for next week.
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