On May 20, the price of Ether (ETH) experienced a significant surge of over 18% following Eric Balchunas, a senior analyst at Bloomberg, raising the approval odds for the Ethereum exchange-traded fund (ETF) from 25% to 75%. Balchunas suggested that the United States Securities and Exchange Commission (SEC) may have faced political pressure due to its previous lack of engagement with ETF applicants.
Balchunas also mentioned that there are reports of the SEC asking exchanges like the NYSE and Nasdaq to update their filings, although there has been no official confirmation from the regulator. However, Nate Geraci, co-founder of the ETF Institute and president of the ETF Store, stated that the final decision is still pending regarding the registration requirement for individual funds (S-1s).
Geraci explained that the SEC could potentially approve the exchange rule changes (19b-4s) separately from the fund’s registration (S-1), which might result in a delay beyond the May 23 deadline for VanEck’s Ethereum spot ETF request. This would allow the regulator more time to review and approve these documents, considering the complexities and risks associated with proof-of-stake (PoS) cryptocurrencies.
The upcoming decision on spot Ethereum ETFs has generated significant interest in the weekly and monthly ETH options expiries. At Deribit, the leading derivatives exchange, Ether options open interest for May 24 is recorded at $867 million, while for May 31, it reaches an impressive $3.22 billion. In comparison, CME’s monthly ETH options open interest stands at just $259 million, with OKX at $229 million.
The call-to-put ratio at Deribit heavily favors the call (buy) options, indicating that traders have been more active in purchasing them than the put (sell) options. If Ether’s price remains above $3,600 on May 24 at 8:00 am UTC, only $440,000 of the put instruments will be involved in the expiry. Essentially, the right to sell ETH at $3,400 or $3,500 becomes irrelevant if it trades above these levels.
On the other hand, holders of call options up to $3,600 will exercise their right, securing the price difference. This scenario results in a substantial $397 million open interest favoring the call options if ETH remains above $3,600 at the time of the weekly expiry.
The stakes are even higher for the monthly ETH expiry on May 31, as 97% of the put options are priced at $3,600 or lower, rendering them worthless if Ether’s price exceeds this threshold.
It’s worth noting that bullish strategies have greatly benefited from ETH’s rally above $3,600. Although the final outcome is unlikely to reach the potential $3.22 billion open interest, the call options are expected to be significantly favored. For example, if Ether’s price reaches $4,550 on May 31, the net open interest will favor call options by $1.92 billion. Even at $4,050, the difference remains favorable to the call options by $1.44 billion.
It is important to highlight that traders have the option to sell put options to gain positive exposure to Ether once it surpasses a certain price. Likewise, a seller of a call option benefits when the price of ETH falls, and more complex strategies can be implemented using various expiry dates. However, estimating the effects of these strategies is not straightforward.
Ultimately, Ether’s unexpected 18% increase has caught option traders by surprise and is likely to result in substantial benefits for bullish strategies. These profits are expected to be reinvested, contributing to the positive momentum of Ether’s price following the expiry.
Please note that this article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making any decisions.