Ethereum (ETH) Options Traders Bullish Ahead of Merger
Ethereum (ETH) is making its sixth attempt to break out of a resistance line. If successful, the next resistance would be seen between $1,650 and $1,725.
ETH has been falling below a descending resistance line since hitting a high of $2,031 on August 14. So far he has made six breakup attempts (red icons).
Given that the resistances weaken each time they are touched, a possible breakout of the line seems like the most likely scenario.
RSI supports the breakout
The six-hour RSI readings support the possibility of a breakout. The main reason for this is the bullish divergence that has developed over the last two lows. Additionally, the RSI is breaking above 50. Additionally, the wave count also supports the possibility of a breakout.
If a breakout occurs, the nearest resistance zone would be found between $1,650 and $1,725.
The Ethereum merger is expected to take place on September 15. It will completely transition the Ethereum blockchain from proof-of-work to proof-of-stake. Before the event, options traders bet heavily on a price increase.
@DeribitExchange noted that there is a huge amount of calls versus puts, and open interest has nearly quadrupled over the past year.
A large portion of put options expire on September 2 and 30, while the majority of distribution calls are due to expire after the merger, specifically September 30 and December 30. Therefore, options traders expect an increase in the price of ETH.
Another interesting one made by looking at various hedging strategies used by options traders. Today, the largest number of open contracts is led by Strangles (37%) and Call Spreads (23.8%).
The Strangle is a strategy in which a call and a put are bought, since the trader expects volatility. Therefore, while the premium paid on both options is lost, the trader makes a profit if the price moves significantly in either direction, triggering one of the strike prices (the set price at which a derivative can be bought or sold). It is therefore essentially a bet on volatility.
Conversely, a Call Spread is a bet on rising prices, which however has a built-in hedge. In it, the trader buys a call with a strike price above the market price and sells a call with an even higher strike price above the market price. In it, the trader loses only the difference between the premiums. However, in case of price appreciation, the trader makes a maximum of the difference between the two strike prices.
So, using these charts, it is possible to summarize traders’ sentiment as being cautiously bullish but definitely expecting volatility throughout the meltdown.
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