Ethereum (ETH) has started to pick up real overarching upward momentum here, sitting at roughly $2800. More traders are employing bearish options strategies. Yet, further inspection into technical metrics, investor sentiment, and options positioning suggests these funds’ bearish wagers are misdirected. BlockTraderHub.com will do our best to break down what’s happening, arming readers with a holistic understanding of what’s in play.
Ethereum's Current Market Position
As of the time of this writing, ETH is trading at about $2,753.3. According to recent data, that number reflects a massive 35% spike in the last 24 hours. Thanks to this recent surge, ETH is approaching a significant resistance line, after a three-month high of $2,879. The fundamental ETH bull case overall technical analysis provides a bullish outlook with ETH likely having further room to run.
From a technical analysis perspective, the summary for ETH is a cautiously positive outlook. The seven-day rating is a “strong buy,” and the one-month rating is a “buy.” This indicates that, in the short, medium, and long-term focuses, forecasters are increasingly expecting Ethereum to see bullish price action.
It's not all green lights. Oscillators, a key tool in determining overbought or oversold conditions, are now neutral. Technical indicators including Relative Strength Index (RSI) and Stochastic Oscillator are both flashing neutral signals right now. It holds true for most other important technical metrics such as the Commodity Channel Index (CCI), Average Directional Index (ADX), and plenty more such as Awesome Oscillator (AO) and Momentum. That leaves traders with little clear signal of ETH’s short-term path. What’s unclear though is if it will be going up or going down.
Moving averages, Simple and Exponential Moving averages (SMAs) are neutral. Together, they signal consistency in all measuring long. These indicators weight price data over a specified period to determine the long-term trend. This neutrality is a sign that ETH’s price is well distributed at the moment. That’s indicative of a lack of significant long-term trend upwards or downwards. Ethereum is estimated to be 88% volatile.
Understanding Bearish Options Strategies
Other traders use options strategies specifically meant to provide a payoff if ETH’s price goes down. Two of the most well-known bearish options strategies are the short risk reversal and the bear diagonal spread. Understanding how these strategies operate is key in assessing their potential effectiveness in today’s market.
Short Risk Reversal
In a narrow risk reversal the speculator would sell a single call at a higher strike and buy a single put at a lower strike. The trader sells a call option that’s quote above the market price. Simultaneously, they purchase a deep out-of-the-money put option that’s priced below the market price.
The purpose of this strategy is to make money if the underlying asset’s price goes down. The premium received by selling the call option goes a long way to offset the cost of purchasing the put option. In an ideal world, the underlying asset’s price will fall below the put option’s strike price. This decline will allow the trader to cash in on the increasing worth of the put option.
A bear diagonal spread involves buying and selling either call options or put options, but with different strike prices and expiration dates. This strategy is much more complicated beyond simply implementing a regular short put or regular short call. It makes you trade two different options contracts simultaneously.
- Selling a Call Option: The trader receives a premium, which is their initial profit. This premium is kept if the asset price stays below the call option's strike price.
- Buying a Put Option: This provides downside protection. If the asset price falls significantly, the put option gains value, offsetting potential losses.
Bear Diagonal Spread
The status quo trader would sell a shorter-dated call option with a lower strike price. Simultaneously, they would purchase a call option with a further out expiration and a higher strike price. The maximum profit potential is achieved if the underlying asset price remains below the short call’s strike price through its expiration.
Despite the availability of these bearish strategies, several factors suggest that a bullish outlook might be more appropriate for ETH at this time. These can range from technical analysis, to market sentiment, to options data.
- Selling a Near-Term Option: Generates income from the premium received.
- Buying a Longer-Term Option: Provides protection if the asset price rises unexpectedly.
Why Bearish Strategies Might Be Misplaced
The daily chart’s emergence of a cup-and-handle formation is a textbook bullish configuration. This pattern is often seen as a sign of an impending bullish breakout following a short period of consolidation. The “cup” illustrates an era when prices plateau, then bounce back. The “handle” serves as a short period of consolidation prior to the breakout.
Technical Analysis Indicators
This comes after ETH recently jumped more than 5%. This breakout pushed it out of an ever-tightening consolidation range that had been building for the last five weeks. That strength breaking out to new highs is a very strong signal that this market is preparing to move higher. While the initial consolidation period served as a support level for continued upward advances, the newly confirmed breakout is a strong sign that buyers have regained control.
Ether futures open interest reaches new record $39.22 billion. Open interest is the total amount of futures contracts that are currently active, or outstanding. A high open interest is definitely a good sign of growing market participation and market sentiment is bullishly positioned among the big traders. This demonstrates that institutional investors and sophisticated traders are placing bets on ETH’s price increasing.
Market Sentiment and Open Interest
Short-term price targets are still aimed in the $3,000-$3,500 band. This development shows that analysts’ and traders’ anticipation for great upside potential for ETH in the short term. These targets derive from technical analysis and price action, historical price history and post speculative euphoria market sentiment.
A clear move above $2,800 resistance could set off a quick surge toward $3,000 and then possibly even $4,100. This represents an impressive leap from existing funding levels. If ETH can reclaim this important level of resistance, it would be bullish and lead to much higher gains. A shift to $4,100 would be a 52% increase above the current fare.
One of the richest and most important sources of market sentiment can be found in the options market. Investors express their sentiments with call options and the positioning of put option strikes. Considering their decisions can show whether they are overall bullish or bearish.
Options Data and Strike Prices
In short, call options put the buyer in control and give them the option to buy the underlying asset. They can exercise them at a fixed price, called the strike price, on or before a certain date, called an expiration date. Put options give the buyer the option to sell the underlying asset. They have the option to purchase this at a predetermined price on or before an agreed upon date, but not the obligation to do so.
When traders are purchasing more call options than put options, it is indicative that they are feeling bullish. On a basic level, they expect the price of the underlying asset to increase. If there are more put options being purchased, it’s an indicator of a bearish mood.
Strike prices for listed options are determined by parameters determined by the Options Clearing Corporation (OCC) or an exchange. Typically, the strike price increments are as follows:
These strike prices are predetermined dollar values, like $31, $32, $33, $100 or $105. The distance between these two strikes is referred to as the strike width. The narrowest strike width offered on most stocks is usually $1 wide at best.
- $2.50 increments: For strikes below $25
- $5 increments: For strikes between $25 and $200
- $10 increments: For strikes above $200
Where put option strikes are located can tell you a lot about sentiment in the markets. If the majority of put options are concentrated at strike prices well below the current market price, it suggests that traders are not expecting a significant decline. Too many puts at or below the current level indicates an expectation of bearish price action. This indicates that the trading community is pessimistic and/or looking for further downside.
Indeed, several bearish options strategies, including the short risk reversal and bear diagonal spread, lurk in the market. This may seem like a paradox when we look at the overwhelming bullish indicators. We should ask what are the motivations and what is the risk profile of the traders using these strategies.
Analyzing the Discrepancy
Some traders could be employing these strategies as a form of protective trade in anticipation of some future downside risk. Even if they are all ETH generally bullish, they will wish to insure their portfolios towards a sudden surprise drop in costs. Or they could be just the contrary, taking a contrarian view, betting against the market hand.
It could be the case that these bearish strategies are being used by traders with a shorter time horizon. Or they could be attempting to hedge against temporary price swings. Despite this, they are all sure that ETH will appreciate in the long run.
The success of any trading strategy is heavily dependent on three main factors. Among those are market conditions, your risk tolerance, and your investment goals. Together, technical analysis, market sentiment, and options data reveal a bullish outlook for ETH. Ultimately, it is incumbent upon traders to do their own due diligence and research to make decisions that are informed based on their specific situations.
BlockTraderHub.com invites you to join us, to be informed and flexible in the fast paced world of cryptocurrency trading. By gaining insight into what drives markets, traders will improve their odds of success. With this understanding, they are better equipped to choose actions that will be the most effective.
BlockTraderHub.com encourages readers to stay informed and adaptable in the ever-changing world of cryptocurrency trading. By understanding the various factors that influence market dynamics, traders can make more informed decisions and increase their chances of success.
