Options Focused on a Single Price on Rising Ethereum: Analyst Evaluates Its Meaning

Ethereum options open interest is concentrated at the $2,200 strike price ahead of Friday’s month-end expiration. According to one analyst, this could be hedging of the bull position or could indicate a short-term bearish outlook on ETH.

This came as ETH traded above $3,000 for the first time since April 2022. Speculators are taking positions on whether the U.S. Securities and Exchange Commission will approve a spot Ether ETF in the coming months.

Options are derivative contracts that give a trader the right, but not the obligation, to buy or sell the asset in question at a predetermined price on or before a certain date. A call option gives the right to buy, while a put option gives the right to sell. It is generally assumed that an investor who purchases a put option is implicitly bearish in the market, while the buyer of a call option is bullish.

According to Bitfinex Derivatives Manager Jag Kooner, the accumulation of $2,200 puts could possibly be part of a hedging strategy. “A popular strategy over the past week would be to purchase a $3,000 Out-of-the-Money (OTM) call option while also hedging downside risks with a $2,200 OTM put option,” Kooner said. He noted that OTM puts can be used as a tool to hedge downside risk while also going long on Ethereum.

“Out of the Money” (OTM) is a term used in options trading to describe an option that has no intrinsic value.

Kooner cited the accumulation of open interest in ETH futures on the Chicago Mercantile Exchange (CME) as additional evidence supporting this viewpoint:

“Institutional investors are currently very active in the options market and CME, which has seen a very large increase in open interest with a surge in OTM selling for ETH around $2,200.”

With more than a week left in February, monthly open interest in ETH futures options has reached an all-time high of $526.66 million.

However, Kooner did not rule out that the increase in positions at this strike price could be due to a negative trend in the next few days, as put positions usually indicate. “The accumulation of ETH puts at the $2,200 strike price and buys clustered at $2,400 could indicate a bearish outlook in the short term as traders prepare for potential price declines,” Kooner said.

*This is not investment advice.