With Ether Options Market Makers 'Long Gamma' at $1.8K, Price Is Likely to Hold

Traders said market makers are holding options with a $1,800 strike price and are likely to influence prices as they try to keep their portfolios direction-neutral.

AccessTimeIconJun 9, 2023 at 3:01 p.m. UTC
Updated Jun 9, 2023 at 3:22 p.m. UTC

Ether (ETH), the second largest cryptocurrency by market value, has been largely locked in a narrow price range around $1,800 since mid-May and is unlikely to move much in the short term, market makers' positions in the options market indicate.

That's because the market makers, the dealers tasked with providing liquidity to an exchange's order book and who are always on the opposite side of investors' bets, are forced to hedge their options exposure through offsetting positions in the spot or futures market in order to run a market-neutral, or delta-neutral, portfolio. Their so-called delta hedging actions as the underlying asset moves can influence the spot market price and are known to arrest price swings.

According to Jeff Anderson, a senior trader at STS Digital, market makers are currently stuffed with what's known as long gamma positions in the $1,800 strike price ether options due to expire on June 30. Market makers are said to be long gamma at a particular price level when they have bought options at that level.

"So, as we go higher, market makers will likely sell ETH. On the flip side, market makers would buy the cryptocurrency on price dips," Anderson told CoinDesk. "So, the spot price could stay close to $1,800."

Options are contracts that give the purchaser the right, but not the obligation, to trade the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy while put the put option offers the right to sell. Being long gamma means holding a buy position in call or put options.

The long gamma positioning forces market makers to snap up the underlying asset when the price falls below the said level to keep the overall portfolio market-neutral. Similarly, they sell the asset when the price rallies. Gamma refers to the rate of change in options delta per one-point move in the underlying asset.

Griffin Ardern, a volatility trader from crypto asset management firm Blofin, said the delta hedging by market makers could strongly influence the spot price.

"Considering the lack of enthusiasm among futures and perpetual futures traders right now, the impact of market maker hedging could be significant," Ardern said.

UPDATE (June 9, 15:22 UTC): Rewrites headline to add price implication.

Edited by Sheldon Reback.


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Omkar Godbole

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