Open interest on Ether (ETH) futures grew by 250% over the past three months to reach $1.7 billion. This incredible build up occurred as the cryptocurrency broke the $400 resistance to reach its highest levels in two years.
ETH futures open interest in USD terms. Source: Skew
Unfortunately, there is no way to ascertain whether futures contracts are mostly used for protection or are the result of increasing leveraged bets on Ether price reaching $500.
The only reliable information from such a market is the basis, which is the comparison of a futures’ contract price versus the spot price of the asset on the open market.
A positive basis, also known as the ‘premium’, indicates a contango situation, which is expected during healthy markets. This simply shows that sellers are demanding more money to postpone trade settlement.
ETH 1-month futures annualized basis. Source: Skew
Currently, the 1-month futures contracts are trading at a 20% annualized premium, indicating that buyers are betting that Ether’s spot price will rise.
The put-call ratio has flipped neutral
To gauge just how bullish professional traders are one should focus on options markets. The two most used indicators to evaluate bull and bear sentiment are the put/call ratio and skew.
The put/call ratio consists of comparing put options open interest against call options. Calls are mostly used by neutral to bullish strategies and the opposite goes for put options.
ETH options open interest put/call ratio. Source: Skew
Despite signs of strong bullish sentiment in futures markets, the put/call ratio is sitting at a neutral position, with calls and puts options open interest virtually balanced.
That’s a striking contrast to the 0.8 level from three months ago, indicating puts were 20% smaller than neutral and bullish call options.
Skew is also less bullish
To better interpret if the previous market sentiment pollutes the put/call ratio, the current skew level provides a real-time fear and greed indicator based on options pricing.
Skew indicators will shift to negative when call (neutral/bullish) options are more costly than equivalent puts. The indicator usually oscillates between -20% to +20%, and it reflects the current market regardless of the previous days or weeks of activity.
ETH 3-month options 25% delta skew. Source: Skew
The above chart reflects how professional traders became less bullish after Ether finally broke the $400 resistance on August 13.
Even though the Skew remains in bullish territory, it is now back to the same level from the previous month when Ether traded sideways close to $240.
September options appear bullish
With less than forty days before the September 25 options expiry, the markets should paint a clearer picture of how much is currently at stake in both call and put options.
September 25 call options pricing. Source: Deribit
By multiplying open interest at each strike by the mark (fair) price, one can infer what would create such a position at the present moment.
There are currently 93.3K call options from $340 up to $880 for the September expiry. Options with higher strike have lower mark prices, as their odds are smaller.
These options are currently valued at $4.4 million, although the open interest adds up to $40.1 million.
Open interest gives the same weight for every strike regardless of its market value, hence using mark (fair) prices provides better data.
September 25 put options pricing. Source: Deribit
The 28.8K put options in the same range are currently valued at $940K, considerably less than their own calls.
This indicates that the sentiment of professional traders is less bullish as shown in the pricing, but far less money is being placed on put options than call options.
$500 seems feasible according to options contracts
An interesting perspective from these $480 and higher strikes for September 25 is the sheer amount of 53.7K call options. At current mark prices, those are worth $1.0 million, composing 25% of the $340 and higher call options value.
From a derivatives trading perspective, not only the $500 level seems feasible within 40 days, but there’s a hefty sum currently backing it.
Future contracts premium corroborate such indicators, as professional traders seem to be bullish regardless of recent $440 top.
Ether seems to be enjoying the positive momentum created by decentralized finance, oracles, and decentralized exchanges’ rapidly increasing usage.
As far as derivatives indicators can tell, dips are for buying.
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