It is anticipated that the Ethereum Merge will take place between September 10 and September 20. The Merge will mark the end of an extended process for changing Ethereum’s Proof-of-Work algorithm to Proof-of-Stake. The Merge is this year’s most eagerly awaited blockchain and cryptocurrency event from a fundamentals viewpoint.
If this happens during a bull market, there could be a speculative frenzy and huge volatility in the ETH markets right now.
Ether still trades roughly 70% behind its all-time high of $4,950 from November 2021, despite recording strong gains between June and September. Therefore, there is still a chance that it will decline.
According to Deribit data collected by Glassnode, Ethereum options traders anticipate that the price of Ether will rise from its current $1,540 level to $2,200 before the merger. Some even speculate a price of $5,000, but interest has waned since the transition to PoS.
Traders are examining the risk after Merge
A so-called “options implied volatility smile” statistic suggests that traders after the Merge are seeking downside protection (OIVS). OIVS uses various strikes for the particular expiration date to demonstrate the implied volatilities of the options. As a result, implied volatility is often higher in contracts out of capital and vice versa.
For example, traders can examine the relative cost of options and determine what type of tail risk the market is pricing in by examining the stability and size of the smile in Ethereum’s September 30 option expiration chart.
As a result, the upward slope of the volatility smile indicates that there is significant buy-side demand for September expiration ETH call options and that traders are willing to pay a premium for a long exposure. Further, as shown in the OIVS chart below, which also shows Call and Put open interests at various strike rates.
According to Glassnode analysts, “post-merge, the left tail is pricing in significantly higher implied volatility, indicating that traders are paying a premium to sell-the-news’ put-option security post-merge”.
