Cryptocurrencies

On May 20, the price of Ethereum (ETH) rose more than 18% after Eric Balchunas, one of…

On May 20, the price of Ethereum (ETH) rose more than 18% after Eric Balchunas, a senior analyst at Bloomberg, raised the odds of approval for an Ethereum exchange-traded fund (ETF) from 25% to 75%. Balchunas noted that the SEC likely faced political pressure, as its previous position showed little interaction with ETF applicants.

source: Eric Balchunas

Balchunas also mentioned that the SEC is asking exchanges like the NYSE and Nasdaq to update their filings, although there is no official confirmation from the regulator. However, Nate Geraci, co-founder of the ETF Institute and president of The ETF Shop, stated that a final decision is still pending regarding registration requirements for single-person funds (S-1s).

On May 20, The Price Of Ethereum (Eth) Rose More Than 18% After Eric Balchunas, One Of...
source: Nate Geraci

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

Analysis of the impact on the expiration of the upcoming $3 billion ETH options

The immediately impending decision of the Ethereum ETF has dramatically increased interest in the expiration of weekly and monthly ETH options. On Deribit, the leading derivatives exchange, open interest for ether options for May 24 was recorded at $867 million, while on May 31, it reached $3.22 billion. In comparison, monthly open interest for CME’s ETH options is just $259 million, with OKX at $229 million.

Deribit’s call-to-sell ratio heavily favors put (call) options, indicating that traders were more active in buying them than put (put) options.

On May 20, The Price Of Ethereum (Eth) Rose More Than 18% After Eric Balchunas, One Of...
Deribit May 24 ETH Options Open interest, in terms of ETH. Source: Derebit

If Ethereum price remains above $3,600 on May 24 at 8:00 AM UTC, only $440,000 worth of short instruments will participate in the expiration. Essentially, the right to sell ETH at $3,400 or $3,500 becomes irrelevant if it trades above these levels.

Meanwhile, holders of put options up to $3,600 will exercise their right, locking in the spread. This scenario results in a significant open interest of $397 million in favor of call options if ETH remains above $3,600 at the weekly expiration time.

The risks are even higher for Ethereum’s monthly expiry on May 31, as 97% of put options are priced at $3,600 or less, rendering them worthless if Ethereum’s price exceeds that limit.

Bullish strategies have benefited greatly from ETH’s rise above $3,600

On May 20, The Price Of Ethereum (Eth) Rose More Than 18% After Eric Balchunas, One Of...
Deribit May 31 ETH options have open interest, in terms of ETH. Source: Derebit

Although the end result will likely be far from the potential open interest of $3.22 billion, it will significantly favor call options. For example, if the price of Ethereum reached $4,550 on May 31, net open interest would favor call options by $1.92 billion. Even at $4,050, the spread is still adequate for call options at $1.44 billion.

Related: Analysts say there are rumors that the SEC is reconsidering its rejection of Ethereum ETFs

It is important to highlight that a trader could have sold the put option, thus gaining positive exposure to Ether once it exceeds a certain price. Likewise, the seller of a call option benefits when the price of ETH falls, and more complex strategies can be implemented using different expiration dates. Unfortunately, estimating this effect is not easy.

Ultimately, Ethereum’s unexpected 18% surge caught options traders by surprise, paving the way for a huge benefit for bullish strategies. These profits will likely be reinvested to maintain the positive momentum, which bodes well for the price of ether after expiration.

This article does not contain investment advice or recommendations. Every investment and trading move involves risks, and readers should conduct their own research when making a decision.

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