Ascending channel pattern and Ethereum options data back traders’ $5K ETH target

Ether (ETH) bulls seem excited with the recent $4,870 all-time high that was hit on Nov. 10. While it was a new high in USD, ETH price is still 51% below June 2017’s price in Bitcoin (BTC) terms but it’s entirely possible that the 0.155 BTC level reached in the previous cycle reflected the overzealous expectations that were rampant during the initial coin offer (ICO) frenzy. 

The Ethereum network’s own success caused congestion and high fees, bringing the competition closer. For example, in mid-2017, the leading “competitors” would have been Ethereum Classic (ETC) and NEM (XEM) and combined, those represented a mere 13% of Ether’s $37 billion market capitalization.

Today, Binance Coin (BNB) and Solana’s (SOL) aggregate capitalization stand at 32% versus Ether’s $557 billion.

At the moment, Ether price is trading in an ascending channel with a target at $5,000, but bears apparently still have reasons to doubt the network’s ability to deliver ETH 2.0 by year-end.

This year Ethereum’s leading use case, decentralized finance (DeFi), gathered regulators’ attention and not in a good way. United States Securities and Exchange Commission (SEC) Commissioner Caroline Crenshaw published her opinion on Tuesday in the article titled, “DeFi Risks, Regulations, and Opportunities”. She mentions that the sector lacks market protections and she raises concerns about pseudonymity and market manipulation.

On the other hand, the value locked on the Ethereum network’s smart contracts reached a $94 billion all-time high, marking a 42% growth in three months. So regardless of the competition or the $50 average transaction fee, there’s undoubtedly a growing demand for its DeFi, non-fungible tokens (NFT), oracles and decentralized marketplaces.

What is interesting is even with Ether’s positive price action which is backed by strong usage metrics, bearish put (sell) options dominate Friday’s ETH $700 million expiry.

At first sight, the $415 million put (sell) options dominate the weekly expiry by 31% compared to the $285 million calls (buy) instruments. The 0.69 call-to-put ratio is deceptive because the recent rally will likely wipe out most bearish bets.

For example, if Ether’s price remains above $4,700 at 8:00 am UTC on Nov. 12, only $10 million worth of those put (sell) options will be available at the expiry. There is no value in a right to sell Ether at $4,700 if it’s trading above that price.

Bears could still tip the scale below $4,600

Below are the four most likely scenarios that consider the current price levels. In addition, the data shows how many contracts will be available on Oct. 20 for both bulls (call) and bear (put) instruments.

The imbalance favoring each side represents the theoretical profit:

• Between $4,500 and $4,600: 7,500 calls vs. 13,600 puts. The net result favors bear (put) options by $25 million.
• Between $4,600 and $4,700: 12,700 calls vs. 7,300 puts. The net result is $25 million favoring the call (bull) instruments.
• Between $4,700 and $4,800: 17,300 calls vs. 2,100 puts. The net result is $75 million favoring the call (bull) instruments.
• Above $4,800: 24,300 calls vs. 100 puts. The net result is complete dominance, with bulls profiting $115 million.

This raw estimate considers the call options being used in bullish bets and put options exclusively in neutral-to-bearish trades. Unfortunately, this oversimplification disregards more complex investment strategies.

For instance, a trader could have sold a call option, effectively gaining a negative exposure to Ether (ETH) below a specific price. However, there’s no easy way to estimate this effect.

Ether price may pullback, but $5K remains the target

If Ether’s price holds above $4,800 on Friday, bulls will net a significant $115 million. In that sense, for ETH bears, taking a $25 million loss should be considered a victory.

There’s still a chance that bears avoid losses on Friday’s expiry by pressuring Ether’s price below $4,600 on Nov. 12, down a mere 3% from the current $4,750. Would that be enough to reject the ascending channel initiated three weeks ago? Not really, because there’s room for $4,500 without breaking the support level.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.