Options on Ethereum show unclear but interesting picture
The Ethereum derivatives market can sometimes give us useful insights into the future movements of assets like Ethereum. In today’s case, we can see an interesting movement of money in the options market as investors are making a bold prediction of $3,000 for Ethereum.
After Ethereum’s most recent explosive growth on the market, investors started to rapidly open call contracts at $3,000. While the expiration date on most open contracts remains the same as during the November-December period, the desire to bet on such a high target shows a shift in the sentiment of investors.
However, it is too early to celebrate the fact that traders and investors are betting on such high prices. The fact that someone is opening a large amount of contracts at the above level could be a part of hedging a very large spot market position.
While some speculative traders think it is a good idea to use options for regular trading, funds managers and institutional investors tend to use them as a hedging tool. Traders who use options as their main trading instrument usually make their profits off of the contract’s price.
Even if Ethereum doesn’t reach $3,000, a significant price increase would put the majority of the $3,000 call contract holders who have just opened it in serious profit. Technically, the owner of an options contract can be considered as an exposure to an underlying asset.
Such a strong spike in volume could be part of a large hedging strategy, as we have already mentioned, since short volume on Ethereum derivatives markets remains high, hedging those positions with options would make sense for an investor in a high position who would like to negate losses in case of upward volatility.
