Ethereum on the Rise: Spot ETF Rumors Fuel Options Market Frenzy
The price of Ethereum (ETH) has skyrocketed to a two-month high of $3,700, fueled by speculation surrounding a potential spot Ethereum Exchange-Traded Fund (ETF) approval. Analysts are significantly more optimistic about the chances of this happening, with some even estimating a 75% possibility.
A Glimmer of Hope: The Potential for a Spot ETH ETF
This surge in optimism can be traced back to comments by Eric Balchunas, a senior analyst at Bloomberg. Balchunas believes the US Securities and Exchange Commission (SEC) might face political pressure to approve an ETF after its previous rejections showed minimal engagement with applicants.
Furthermore, Balchunas suggests that the SEC may be requesting updates to filings from major exchanges like the NYSE and Nasdaq. However, the regulator has not officially confirmed this yet.
According to Nate Geraci, co-founder of the ETF Institute, the final decision regarding individual fund registration (S-1s) still hangs in the balance. Geraci suggests that the SEC could separate the approval process for exchange rule changes (19b-4s) from the fund registration itself. This separation could delay the final decision beyond the May 23 deadline for VanEck’s Ethereum spot ETF request. This additional time would allow the SEC to thoroughly review complex structures involving Proof-of-Stake (PoS) cryptocurrencies like Ethereum.
Options Market Gears Up for Expiry
The looming decision on spot Ethereum ETFs has significantly impacted the upcoming expiries of weekly and monthly ETH options. Deribit, a leading derivatives exchange, is witnessing a massive surge in open interest for ETH options contracts. For the May 24 expiry, open interest sits at a staggering $867 million, while the May 31 expiry boasts an even more impressive $3.22 billion. This dwarfs the open interest figures on other platforms like CME ($259 million) and OKX ($229 million).
Bullish Bets Dominate Options Landscape
Looking at Deribit’s call-to-put ratio, it’s clear that traders are overwhelmingly bullish on Ethereum. This ratio favors call (buy) options, indicating that traders are more actively purchasing options to buy ETH at a certain price by the expiry date than put (sell) options.
The Expiry Scenario: Bulls Poised to Profit
Here’s a breakdown of what could happen at expiry, specifically the May 24 weekly expiry:
If the price of ETH remains above $3,600 by 8:00 AM UTC on May 24, put options (sell options) priced at $3,400 or $3,500 will become worthless, as they grant the right to sell ETH at a lower price than the current market value. This eliminates roughly $440,000 of put options from the equation.
Conversely, call option holders with strike prices up to $3,600 will exercise their right to buy ETH at the lower price and immediately sell it at the current market price, pocketing the difference. This scenario translates to a potential $397 million windfall for bullish call option holders if the price stays above $3,600 at expiry.
The stakes are even higher for the May 31 monthly expiry, with a whopping 97% of put options priced at $3,600 or lower. This means these put options will expire worthless if the price of ETH remains above $3,600 at that time.
Potential Profits to Fuel Continued Growth
While the outcome may not involve the entire $3.22 billion open interest, it’s likely to favor call options significantly. Even in scenarios where ETH doesn’t reach astronomical heights, the open interest suggests a substantial profit for bullish strategies. These profits are likely to be reinvested back into the market, potentially fueling further price increases for Ethereum following the expiry.
Beyond the Bullish Frenzy
It’s important to remember that options trading involves complex strategies. While the article highlights the potential benefits for bullish option holders, other strategies are at play. For example, traders could have sold put options to profit when the price goes up or sold call options to benefit from a price decrease.
The true extent of these strategies is difficult to estimate. Still, one thing is clear: Ethereum’s unexpected surge has caught options traders by surprise, creating a scenario favoring bullish bets. This could lead to significant profits that could further propel Ethereum’s price in the coming days.
