Ether derivatives conditions could trigger sharp ETH price swing in near future, analysts say

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By Harper Lee

“The market is short of short-term options, meaning a sharp move in one direction or the other would be amplified,” analysts at QCP Capital said.

Similar conditions were detected by crypto derivatives trader Gordon Grant, who observed a sharp increase in short-term volatility as ether recently saw a bigger sell-off than bitcoin.

“You can see the material divergence between ether and bitcoin. The term structure remains strongly inverted with an elbow demonstrating demand for gamma and a premium for gamma ether relative to bitcoin and a premium for gamma ether compared to vega ether,” Grant told The Block.

Gamma, a mathematical expression defined as the second derivative of the premium of an option relative to the price of its underlying, essentially refers to the rate of variation of the equivalent directional risk of an option relative to the price of the underlying asset. -jacent. According to Grant, higher gamma implies more changes in this equivalent directional risk, called delta, with the price of a given asset moving. Vega, on the other hand, corresponds to the change in the value of an option given a change in its implied volatility.

More and more traders are buying put options before their short-term expiration. According to Deribit, ether options are open data, the current put-call ratio for upcoming expirations reaches 1.04, especially for this Thursday’s expiration. A put-call ratio above 1.0 indicates a preference for puts, a sign of bearish sentiment in the market.

A call option gives its owner the right, but not the obligation, to buy the underlying asset and is therefore a bullish bet on the asset. In contrast, a put gives its owner the right to sell the asset and constitutes a bearish bet.

Put options would give these traders gamma because the option’s delta decreases as the price of ether falls, allowing them to profit if the price falls.

Ether experiences short-term negative sentiment

Analysts at QCP Capital noted that indicators of ether risk reversal trades suggest a strongly pessimistic expectation regarding ether price movements in the near future. “Ether risk reversals turned very negative on the front end, at -12%, indicating a sense of nervousness,” QCP Capital analysts added.

A risk reversal trade is a complex strategy used by traders to take a position on the price direction of an asset while managing the risk of adverse price movements.

The analysts added that crypto markets are becoming “increasingly nervous, with the downward trend in ether risk reversals sinking even deeper,” in part due to macroeconomic conditions. “We expect this nervousness to persist as the Iran-Israeli conflict develops; risk-averse sentiment has also been exacerbated by weakness in US stocks,” QCP Capital analysts added.

Ether is down about 3.4% over the past 24 hours and was changing hands for $3,073 as of 10:31 a.m. ET, according to The Block’s price page.

The price of Ether has fallen by approximately 3.4% in the last 24 hours. Image: The block.

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