Key takeaways:
Ether (ETH) price surged 10% between Monday and Tuesday, reaching its highest level in over 15 weeks. Despite this rally, ETH has consistently struggled to break above the $2,800 mark over the past month. This resistance level has coincided with a growing use of downside protection strategies in ETH derivatives markets.
In addition to standard call (buy) and put (sell) options, traders often use combinations of instruments to design strategies aimed at either maximizing gains above certain levels or reducing exposure to losses. As a result, tracking demand for these options offers insights into how professional traders are positioning themselves.
Traders buy ETH downside risk protection
Open interest in ETH options increased from $6.3 billion to $8.3 billion between early April and June 9, signaling stronger institutional involvement. Deribit remains the dominant exchange, holding a 72% market share. Therefore, it is essential to analyze the flow imbalance between bearish and neutral-to-bullish trades.
One of the most notable strategies traded on Deribit in the past two weeks has been the hort risk reversal.” This setup profits from bearish price moves while collecting a net premium upfront. It involves buying a put and selling a call, hedging against losses below the put strike.
Another popular strategy is the bear diagonal spread, which expresses short-term bearish sentiment in a cost-efficient way. This involves selling a near-term call option and buying a longer-dated call at a higher strike, aiming to benefit from time decay and rising implied volatility.
Ether bulls are optimistic about the upcoming June 27 monthly options expiry, especially since call (buy) options account for 63% of total open interest. Currently, 92% of Ether put (sell) options are set at $2,700 or lower, levels that would expire worthless if ETH trades above that mark at expiry.
Some of the market’s caution can be attributed to Ether’s 49% price increase since May, while competitors like Solana (SOL) and XRP gained 8% and 2%, respectively. Traders worry that ETH’s competitive edge could erode if the US Securities and Exchange Commission approves exchange-traded funds (ETFs) for rival altcoins.
Bitcoin continues to drink altcoin’s milkshake
Concerns about Ether’s institutional appeal also emerged after Trump Media and Technology Group, the majority-owned firm of former US President Donald Trump, announced a $2.5 billion debt and equity issuance to build a Bitcoin treasury.
Related: Ethereum network growth, spot ETH ETF inflows and price gains lure new investors
Adding to the shift in narrative, Bo Hines, executive director of the White House President’s Council of Advisers on Digital Assets, stated on June 9 that details about the US Strategic Bitcoin Reserve would be shared “in short order,” emphasizing that the “community will be extremely pleased.”
Despite the increased demand for downside protection in ETH options, this doesn’t necessarily imply traders are betting on a price drop. With most June 27 put options targeting levels below $2,700, neutral-to-bullish strategies appear to have the upper hand, offering a supportive backdrop for ETH’s price.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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