According to one witness, sophisticated traders acquired put options to safeguard against a continued ether price slide.
On Monday, as ether fell to a 10-day low, market participants took bets that would protect them from a further drop in the second-largest cryptocurrency.
According to Swiss-based data tracking firm Laevitas, a single trader or many dealers bought more than 36,000 contracts of Deribit-listed ether put options expiring on March 18, of which more than 20,000 were banned on institution-focused over-the-counter tech platform Paradigm. If ether falls below $2,200 by March 18, put option buyers will profit. That’s a 13 percent drop from the current market price of $2,514 per share.
Patrick Chu, director of institutional sales and trading at over-the-counter tech platform Paradigm, said, “We saw substantial demand for 18 March, 2200, options yesterday as players attempted to acquire short-dated protection on the important 2,200 pivot level in ETH.”
Three years ago, Deribit, the world’s largest crypto options exchange by trading volumes and open positions, and Paradigm launched a block-trading service for institutions. Trades assisted by Paradigm are completed, margined, and cleared automatically at Deribit. A block trade is a high-volume transaction that is privately negotiated and completed over-the-counter between two parties.
One ETH is represented by one ether options contract on Deribit. A put option offers the buyer the right, but not the responsibility, to sell the underlying asset at a defined price on or before a certain date. A buyer of a put option is implicitly negative on the market, whereas a buyer of a call option is implicitly positive.
When traders with long holdings in the spot or futures markets are concerned about a temporary dip in the asset’s price, they buy put options. However, some traders use options as vehicles for speculation, expressing their bearish bias by buying puts near the current market price and selling an equal number of puts below the market price, or by creating spreads – buying puts near the current market price and selling an equal number of puts below the market price.
Most of the trades in the $2,200 put reported on Monday, according to Laevitas, were simple longs that did not appear to be part of a complicated options plan. In a Twitter chat, Laevitas added, “Most of them were outright transactions, potentially short-term hedges.”
Ether has been on a downward trend since November. In late January, sellers ran out of steam around $2,200, cementing the psychological level as critical support.
The options market has been continuously bearish since late January, with the one-week, one-, three-, and six-month put-call skews all showing positive values. The cost of puts in relation to calls is measured by put-call skews.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.