Ether Options Trading Reflects Bullish Sentiment Ahead of U.S. Spot ETF Launch

Anticipation Surrounds Ether Options Ahead of U.S. Spot ETF Launch

Ether (ETH) options trading on Deribit is reflecting a bullish sentiment as traders eagerly await the launch of spot ETH exchange-traded funds (ETFs) in the United States, scheduled for Tuesday. According to data from Amberdata, there is a noticeable volatility premium on both short-duration and long-duration call options compared to puts. This indicates that traders are forecasting immediate price gains following the ETF introduction and sustained upward momentum in the months to come.

A call option provides the holder with the right to purchase the underlying asset at a specified date in the future, signifying a positive outlook on the market. In contrast, a put option, which grants the right to sell, suggests a more bearish sentiment. The current inclination towards call options is in stark contrast to the usual worries of a “sell-the-fact” price reaction. A “sell-the-fact” pullback typically involves a decline in price as early investors take profits following the occurrence of a highly anticipated event.

The long-awaited approval for spot ether ETFs came to fruition on Monday, with the U.S. Securities and Exchange Commission (SEC) greenlighting their listings. This pivotal development is expected to unlock significant investment opportunities for institutional investors, potentially pouring billions into the second-largest cryptocurrency.

Valentin Fournier, an analyst at digital assets research firm BRN, emphasized the importance of maintaining exposure to the positive trends in cryptocurrency markets but advised a preference for bitcoin over ether, suggesting that much of the anticipated hype and ETF inflows may already be factored into ether’s price. He stated, “We anticipate Ethereum to drop to levels between $2,800 and $3,100 before bouncing back toward $4,000 by September.”

Similarly, Markus Thielen, the founder of 10x Research, echoed these sentiments in a recent newsletter, expressing his intention to take profits once the ETF launches, or possibly even hours beforehand. Historical patterns lend credence to these concerns, as seen with bitcoin. After the launch of spot ETFs on January 11, the leading cryptocurrency experienced a 20% decline within two weeks. On that occasion, the options market shifted to a bearish stance the day prior, signaling a potential sell-the-fact scenario.

The listings of futures-based BTC ETFs in October 2021 and CME BTC futures in December 2017 also marked significant peaks in the bull market, reinforcing the cautious outlook among traders.

The current positive skew in call options illustrates the relative value of calls over puts. One reason for the prevailing call bias regarding ether ETFs could be that expectations for inflows have been set relatively low. Crypto market maker Wintermute indicated on Monday that inflows in the next 12 months could be as much as 62% lower than the $16 billion garnered by bitcoin ETFs within the first six months. Similar projections have been circulating among investment banks since the second quarter.

Moreover, the ETH price has not seen a significant “buy the rumor” surge leading up to the ETF launch, diminishing the likelihood of a sell-the-fact adjustment. While Bitcoin has recently set new highs in the first quarter, ether peaked at around $4,000—well below its record high of $4,866—and is currently trading at approximately $3,525, according to CoinDesk data.

Ilan Solot, senior global strategist at Marex Solutions, pointed out, “No pre-launch pump reduces the ‘sell the news’ risk.” He noted that the historical two-week decline in Bitcoin post-ETF launch led many investors to adopt a strategy of waiting to buy on a dip for ETH, which often results in shallow or nonexistent dips.

Solot further remarked, “Natives remain ‘underweight’ in ETH, in my reading, still running last cycle playbooks of altcoin/L1, which has been reasonably successful so far. This regime might be about to change.”