Ether Call Demand Signals Anticipation of Year-End Rally

Investors who buy calls are implicitly bullish on the market.

Dec 20, 2021 at 11:14 a.m. UTC
Updated Dec 20, 2021 at 3:43 p.m. UTC

Notably bullish flows hit ether’s options market early Monday, indicating budding hope for a recovery rally ahead of the year-end.

Institution-focused over-the-counter (OTC) desk Paradigm saw 18,500 contracts for the $4,400 call option and 14,000 contracts for the $4,200 call option change hands during Asian trading hours. These trades due for expiry on Dec. 31 were executed on Paradigm and booked on Deribit, the leading exchange for cryptocurrency options by volume and open interest.

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

While options’ primary use is to protect spot or futures market exposure from unexpected bullish or bearish moves, speculators sometimes bet on the underlying asset by simply buying calls or puts.

“The two trades were traded live and appear to be a large directional bet for a move higher into year-end,” Patrick Chu, director of institutional sales and trading at Paradigm, told CoinDesk.

Theoretically, the $4,400 call represents a bet that ether would settle above that level on Dec. 31. However, buyers can square off positions before the expiry if ether (ETH) chalks a quick move higher, boosting the value of bullish bets.

Note that out-of-the-money (OTM) calls at strikes higher than the underlying asset’s current market price (CMP) are relatively cheap compared with strikes at or below the CMP and tend to gain significant value on a sudden move higher. Thus, traders often snap up OTM calls in a bid to make outsized gains.

Despite sizeable buying activity in the $4,200 and $4,400 calls, the overall options market still signals caution.

Ether's put-call skews (Skew)

According to data tracked by crypto derivatives research firm Skew, the one-week and the one-, three- and six-month put-call skews are positive, a sign of puts or downside bets drawing higher prices or demand than calls.

Ether is currently trading near $3,800, representing a 3% decline on the day. The token powering Ethereum’s blockchain seems to have found acceptance under a five-month bullish trendline.

Ether's daily chart (TradingView)

DISCLOSURE

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