On August 28, 2020, contracts worth $80 million expire, accompanied by a 3.29% change in Ethereum’s price on the spot exchange. Typically, major expiration events like these affect the price of Ethereum as they bring about changes in liquidity, open interest and put/call ratios.

However, non recently, the relationship between contract expiry and spot price still exists even though the relationship has changed, which is perhaps why the Ethereum derivatives market has risen so much.The 24 hour price change of +3.29 % is perhaps the best evidence of this.

Furthermore, it could be argued that contract expiry signals bearish sentiment, which is the opposite of intuition. At the same time, this may not hold true in the long run.Further expiry dates for Ethereum contracts are September 25, 2020, December 25, 2020, and March 26, 2021. The spot price of Ethereum could react very differently to these expiry events.

Short-term gains = long-term pain?

Historically, declines in options volume have occurred after expiration events, and the same is true for August 28, 2020.

The aftermath of $80 M contracts expiring Ether contracts

Source Skew

Options trading volume was down more than 48% on the expiration date, August 28, 2020, and today’s numbers are down further.The 48% percentage drop is significant because on the previous expiration date, August 20 and 21, volume was down only 22% and 35%, respectively. However, the drop in volume did not negatively impact prices at that time due to sufficient liquidity in the spot trade. Moreover, buyers kept demand steady and prices remained resilient.

Nonetheless, a drop in volume also means a drop in volatility, which could limit the 24-hour variation in Ethereum prices until volume recovers by 20-25%.

Put Sell 38% – Did you sell?

Unlike options trading volume, options flows do not directly affect the price of the spot exchange. However, it has a direct impact on derivatives exchanges. At the time of this writing, the put option sell-through was limited to 38%. And while the bearish sentiment continues, it is certain that it has been kept in check. However, if put selling breaks through 45%, a short term decline by the end of the weekend could be the future.

The aftermath of $80 M contracts expiring Ether contractsThe aftermath of $80 M contracts expiring Ether contracts

Source: SkewSkew

In addition, call buying volume was 25% and a further increase in the same would be welcome as it indicates that more traders are willing to buy at predetermined prices. This would stimulate bullish sentiment among Deribit and OKEx derivatives traders.

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2020-08-29