Large Ether Options Flow Guards Against Price Slide Below $2.2K

Sophisticated traders bought put options to protect against a continued ether price drop, one observer said.

AccessTimeIconMar 8, 2022 at 8:53 a.m. UTC
Updated May 11, 2023 at 6:43 p.m. UTC

As ether (ETH) slipped to a 10-day low on Monday, market participants took bets that would offer protection against a deeper slide in the second-largest cryptocurrency.

A single trader or several traders bought more than 36,000 contracts of Deribit-listed ether put option expiring on March 18, of which more than 20,000 were blocked on institution-focused over-the-counter tech platform Paradigm, according to Swiss-based data tracking firm Laevitas. The put option buyers would make money if ether drops below $2,200 by March 18. That's a roughly 13% decline from the current market price of $2,514.

"We witnessed strong demand for 18 March, 2200, puts yesterday as players looked to buy short-dated protection on the key 2,200 pivot level in ETH," Patrick Chu, director of institutional sales and trading at over-the-counter tech platform Paradigm, told CoinDesk in a Telegram chat.

Deribit, the world's largest crypto options exchange by trading volumes and open positions, and Paradigm introduced an institution-focused block-trading service three years ago. Trades facilitated by Paradigm are automatically executed, margined and cleared at Deribit. A block trade is typically a high-volume transaction privately negotiated between two parties and executed over-the-counter.

On Deribit, one ether options contract represents one ETH. 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 put buyer is implicitly bearish on the market, while a call option purchaser is bullish.

Savvy traders holding long positions in the spot or futures market typically buy put options when they are concerned about a temporary drop in the asset's price. However, sometimes traders treat options as vehicles for speculation, expressing their bearish bias through a long position in put options or by creating spreads – buying puts near the current market price and selling an equal amount of puts below the market price.

According to Laevitas, most of the trades in the $2,200 put registered on Monday were straight forward longs and did not appear to be part of a complex options strategy. "Most of them were outright trades, possibly short-term hedges," Laevitas said in a Twitter chat.

Ether's daily price chart (TradingView)
Ether's daily price chart (TradingView)

Since November, ether has been trending lower. Sellers ran out of steam around $2,200 in late January, establishing the psychological figure as crucial support.

Since late January, the options market has consistently shown a bearish bias across all timeframes, with the one-week, one-, three- and six-month put-call skews returning positive values. Put-call skews measure the cost of puts relative to calls.

Ether put-call skews (Skew)
Ether put-call skews (Skew)


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.