As expected, everything went well for the Ethereum Marj update and the update is expected to happen tomorrow, September 15th. With this update, the current Proof-of-Work consensus-based execution layer will be integrated with the China Beacon Proof-of-Stake chain. Proponents expect that this will increase the scalability of Ethereum and make it more environmentally friendly.
According to Mihan Blockchain and quoted by Cryptoslit, although on the eve of Marj, the price of Ethereum experienced a significant jump and has increased by about 90% since the crash of June 18 (28 June), the purchases seem to have peaked in the past days. has arrived
However, analysis of Ethereum derivatives market data shows that traders expect the price of Ether to fall after the Marj.
Smile diagram of implied volatility
The volatility smile chart shows the implied volatility according to different strike prices in the option market and the expiration date of the contracts. Implied volatility usually increases when the underlying asset of an option contract is either at-the-money (ATM), in the loss (OTM), or in the profit (ITM).
Usually, option contracts in OTM status have higher implied volatility and therefore, their smiley graphs have a steeper slope. In general, by using the slope and the shape of the volatility smile graphs, it is possible to analyze the expensive evaluation of option contracts and market risks.
The chart shows the data in 1-day, 2-day, 1-week and 2-week intervals. For example, when the implied volatility in the ATM position for high strikes is lower compared to previous data, it can signal a reduction in market pricing risk. In such a case, there is less possibility of extreme price movements in the market.
As we examined the behavior of options market traders in a report last month using the implied volatility smile chart, we saw that they expect the price to rise before Marj and then fall after the update is over. But has anything changed since then?
The smile chart shows the volatility below the bearish divergence compared to past historical charts. Typically, the implied volatility is lower at lower strikes of option contracts. However, on the left side in each graph, it has increased by about 100%, which indicates the possibility of volatility after the Marj update.
Checking the open profit of option contracts
Open interest shows the number of active option contracts. These contracts have been traded but not yet liquidated.
There is no information regarding the time of purchase or sale of these contracts. However, the open profit of option contracts can be used to measure trading volume at different prices as well as to determine liquidity.
The chart below shows the total open profit of call (buy) and put (sell) contracts based on their strike price. The increase in the number of put contracts indicates the bearish sentiments of investors. According to the data, there are more than 22,000 put contracts at $1,100.
Checking the annual funding rate of futures contracts
This benchmark compares the annual rate of return on a cash and carry strategy deal with expiring three-month futures deals (with a 3-month basis) and the funding rate of perpetual contracts.
Given that digital assets have low storage, handling and delivery costs compared to physical commodities, perpetual futures contracts have become a popular tool for venture capital investment, risk hedging and receiving funding rate premiums.
According to the chart below, for about three weeks, the funding rate of permanent contracts is lower than 3-month rolling contracts, which indicates that traders are waiting for fluctuations and have not invested their capital in the market for now.
During the peak price in November 2021, the situation was reversed and the funding rate of perpetual contracts was much higher than 3-month rolling contracts.
Bitcoin open profit comparison with Ethereum
The open profit of Ethereum option contracts is currently around 8 billion dollars, which is a new record. Meanwhile, current open interest in Bitcoin contracts is $5 billion, far from its peak of $15 billion.
In July, Ethereum futures volume surpassed Bitcoin for the first time, indicating that investors and traders are bullish on the Ethereum market and are preparing for it.
- How does the expiration of Ethereum options affect the price of ETH?
Considering that the expectations for the update of the Ethereum platform have increased the price of the ETH cryptocurrency in recent times, but the price changes have decreased as we get closer to this update and the risk management of institutional investors. Derivatives data suggests that we may see more volatility on Friday with more than 22,000 Ethereum Put contracts settled.