Ether Options Market Bets on Price Gains Post-Spot ETF Approval

• Positioning in ether's options market counters concerns of a profit-taking-induced price drop following the ETF launch.
• The absence of a pre-launch pump reduces the “sell the news” risk, one observer said.

Ether (ETH) options listed on Deribit are anticipating positive price outcomes from the expected debut of spot ETH exchange-traded funds (ETFs) in the U.S. on Tuesday.

Data tracked by Amberdata show short-duration and long-duration call options are trading at a volatility premium to puts. That's a sign traders expect price gains immediately after the introduction and in the months ahead. A call option gives the holder the right to buy the underlying asset at a later date and represents a bullish bet on the market. A put, or the right to sell, indicates a bearish bet.

The bias for call options runs counter to concerns of a typical "sell-the-fact" price response. A sell-the-fact pullback refers to a price drop stemming from early investors taking profits on the occurrence of a highly anticipated event.

Analyst insights

The crypto market's long wait for spot ether ETFs ended Monday after the U.S. Securities and Exchange Commission (SEC) approved their listings, opening the floodgates for institutional investors to invest billions of dollars in the second-largest cryptocurrency.

"We recommend maintaining exposure to the positive momentum in cryptocurrency markets but favor bitcoin over ether, as we believe the hype and [ETF] inflows are already priced in for ether," Valentin Fournier, an analyst at digital assets research firm BRN, said in an email. "We anticipate Ethereum to drop to levels between $2,800 and $3,100 before bouncing back towards $4,000 by September."

Markus Thielen, founder of 10x Research, voiced a similar opinion in Tuesday's edition of the newsletter, saying, "will take profit once the ETF launches – if not hours before."

There's historical precedent for those concerns. Bitcoin, the leading cryptocurrency by market value, fell 20% in roughly two weeks after spot ETFs began trading on Jan. 11. The cryptocurrency's options market flipped bearish the day before, warning of a sell-the-fact pullback.

Similarly, the listings of a futures-based BTC ETF in October 2021 and CME BTC futures in December 2017 marked major bull market tops.

What the data says

The positive call-put skews show relative richness of calls.

One reason for the call bias on ether ETFs could be that the bar for expected inflows has already been set low. Crypto market maker Wintermute said Monday that inflows over the next 12 months could be 62% less than the $16 billion pulled in by bitcoin ETFs in six months. Similar forecasts by investment banks have been doing the rounds since the second quarter.

Besides, the ETH price has not experienced a significant "buy the rumor" surge leading up to the ETF launch, which weakens the case for a sell-the-fact adjustment. While BTC set new highs in the first quarter, ether peaked at $4,000, well short of its record high of $4,866, and was recently changing hands at $$3,525, according to CoinDesk data.

"No pre-launch pump reduces the 'sell the news' risk," Ilan Solot, senior global strategist at Marex Solutions, said in an email. "The precedent of Bitcoin’s 2-week post-ETF decline led investors to adopt a 'I’m waiting to buy on the dip' strategy for ETH. This often means the dips are shallow or don't even come."

"Natives remain 'underweight' ETH, in my reading, still running last cycle playbooks of altcoin/L1, which has been reasonably successful so far. This regime might be about to change," Solot added.