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ETH volatility may just increase as the biggest expiry of ETH options happens today

Photo of: Sangeetha Golchha
by Sangeetha Golchha

The Ethereum options contract worth $415 million is all set to expire today on September 25th on Deribit. The options expiring this Friday in open interest is stated to be the largest expiry of Ethereum options ever seen. With such high stakes on it, it can be expected that market volatility will be up high. At the current prices, there is a good possibility that most of the option traders might just be expecting to lose money instead of gaining. 

Derbit is one of the leading web portals for options contracts for both Bitcoin and Ethereum with a huge market share of 75% and 92% respectively. The below-given image from Skew is a comparative analysis of ETH options open interest amongst the top players Dribit, OKEx, and Huobi. As we can see Derbit marked in red, markets are dominated by the portal for Eth-based option contracts. 

Source: Skew

But, unfortunately at the current prices, options buyers on Deribit could lose money. In fact, those call option contracts which were purchased for around $340 will be literally zero value by the time it expires tomorrow. Buyers of these options contracts are given the right to buy or sell the asset at a specific date in the future. These rights are purchased by them with a one-time premium which they need to pay for every contract. The buyer will attract profits when his/her gains exceed the premium paid to acquire the contract. 

If tomorrow after the expiration, the price of Ethereum comes below $60 then traders holding put options will still be able to sell their coins at the strike price of the contract due to which they would be able to earn good profits. If the prices are at $600 the holders of call options will let contract holders buy coins at the lower contract prices. But as mentioned if it remains at $340 then it will result in huge losses for both calls and put buyers. Sellers of the options contracts regardless of the situation will end up making profits.

The call/put ratio of 0.84 also suggests that the options market is currently bullish with a high volume of unsettled call options at a strike price between $400 and $560.They are usually purchased as a risk hedge against mining exposure. Those who lose on the options market will preferably try to adjust their futures or even spot exposure in anticipation of moves either today or afterwards.

Talking about the three-month daily realized volatility of Ethereum, it stands at 4.4%. It possesses an average of 6% in the last four years. Realized volatility is the actual movement that happens for a given underlying asset over a defined past period.

Although its trends have been on a downward note due to the coronavirus instigated uncertainty, the DeFi boom is penning down a different story.