Ether Options Market Shows Bias for Price Weakness Over 3 Months

As ether buckles, put options – offering downside protection – are drawing higher prices.

Sep 20, 2021 at 11:52 a.m. UTC
Updated Sep 20, 2021 at 1:58 p.m. UTC

Ether’s three-month put-call skew, which measures the cost of puts – or bearish bets – relative to calls, flipped positive on Monday for the first time in since July. A positive value implies relatively greater demand for puts, a sign that investors are seeking protection against falling prices.

The gauge rose to 2%, the highest level since July 21, according to data provided by crypto derivatives research firm Skew.

A put option gives the purchaser the right, but not the obligation, to sell the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy.

The one-week put-call skew has also jumped to a two-month high, touching 12%, alongside an uptick in the one-month gauge. Meanwhile, one-month implied volatility, or investors’ expectations for price turbulence over the next four weeks, has risen slightly to an annualized 92% from 88%.

Sentiment has soured, with ether falling 8% to $3,070 in the past 24 hours amid broad-based risk aversion in crypto and traditional markets. Bitcoin, the largest cryptocurrency by market value, is also nursing an 8% loss. Other alternative cryptocurrencies trading in the red today include the native tokens of Cardano, Polkadot and Solana, which are all down about 10%.

Crypto and traditional markets have been hurt by the debt crisis at China’s cash-strapped property giant Evergrande and by the possibility that the Federal Reserve will begin to scale back its monthly bond purchases.

“I would not be surprised if there are liquidations [forced unwinding of long positions] on ether nearing that could trigger a further drop,” said Laurent Kssis director of CEC Capital, an independent crypto financial services firm. “This downward movement was anticipated last week and may continue for a few more days, if not a week.”

Still, some analysts remain bullish for the long term. Simon Peters, a market analyst at eToro, said in a daily note that with the burning of ether, scarcity of the token will grow and theoretically raise prices for the crypto asset.

Since Ethereum’s London upgrade on Aug. 5, more than 300,000 ether tokens have been burned. That amounts to roughly $1 billion worth of the token.

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Lyllah Ledesma is a reporter on CoinDesk's Markets team.

Omkar Godbole is the senior reporter on CoinDesk's Markets team.