Leading altcoin Ethereum traders are making a big bet on the pre-merge altcoin. Institutions adopt an options trading strategy that aims to profit from the degree of volatility. Here are the details…
Options trading on the rise for leading altcoin ETH
“Block traders have also started betting on a volatility spike in ETH,” said Griffin Ardern, a volatility trader at crypto asset management firm Blofin. In the last 24 hours, the crypto options exchange Deribit drew attention to the large trades that broke the band. This trade, called a “long strangle,” involves trading options with similar expirations. The strategy pays off when the asset price changes enough in either direction for a call or put order that is worth more than the total premium paid for buying both options. The strategy causes money to flow when the asset changes little. It reduces the demand for options and option prices.
The growing interest in volatility trading also signals the maturation of the market and the entry of sophisticated traders into the industry. “They are willing to pay relatively higher costs to get the potential high returns,” Ardern said. Block traders are set to “long strangle” on options expiring September 9, September 30 and October 28. Options expiring on September 30 and October 28 will capture market activity before and after the merger.
According to the Deribit chart above, traders have 4,000 contracts long on the $3,000 call and 4,000 contracts long on the $800 call, which will expire on October 28. According to experts, if ETH settles well beyond the $800-3,000 range on October 28, the strategy will pay off. This would make the sale worth more than its initial cost per contract of $62.98. This figure is reached by adding the premium paid for a call option contract of $40.52 and a put option contract of $22.46. The total premium paid for purchasing 4,000 call and sell contracts is $251,920. The calculation is based on the figures indicated in the chart above.
Traders can liquidate their positions
If ETH settles inside this range on October 28, the entire premium paid will be forfeited. However, traders usually liquidate positions before the contract expires, depending on market conditions. For example, let’s say there is a large burst of volatility before or just after the Merge. In this case, the trader can liquidate positions and pocket the difference. If the merge turns out to be uneventful, option prices will slide and traders will double their long strangle positions. Although it may seem easier at first than directional trading, volatility trading is complex.
Therefore, it is best suited for sophisticated traders or institutions with extensive expertise and capital resources. Meanwhile, cryptocoin.comAs we have also reported, ETH is expected to perform the Merge upgrade on September 15.
