Interest in Ether Options Rises to Record as Traders Bet on 'Merge'

The number of open positions in ether's (ETH) options market has reached a record high as an updated timeline for Ethereum's long-awaited supposedly bullish "merge" has spurred demand for call options.

• Open interest – the number of options contracts traded but not squared off with an offsetting position – stood at a new lifetime peak of nearly 4 million, according to data from major exchanges, including Deribit, tracked by Swiss-based derivatives analytics firm Laevitas. The previous peak of around 3.5 million was registered in the second quarter.
• "The desk has traded an incredible amount of ETH calls this week, over 250,000 ETH notional," the Singapore-based options trading giant QCP Capital noted in a Telegram chat.
• "A few hedge fund names have been large buyers of the ETH calls and the overwhelming demand has brought September volumes up to 100%," the trading firm said, adding, "We expect this demand to continue as we approach the merge in September."
• Martin Cheung, an options trader from Pulsar Trading Capital, said, "There are big players in September and December expiry, betting on an upside in ether."
• Recently, the spread between prices paid for puts relative to calls has narrowed sharply, indicating renewed demand for calls.
• A call option gives the purchaser the right but not the obligation to buy the underlying asset at a predetermined price on or before a specific date. A call buyer is implicitly bullish on the market. A put option represents a bearish bet.
• The optimism has returned to the ether market ever since Ethereum developer Tim Beiko announced Sept. 19 as a tentative date for the completion of the merge.
• As the name suggests, the upgrade will merge Ethereum's current proof-of-work blockchain with a proof-of-stake blockchain called the Beacon Chain, which has been running since 2020. The transition is considered bullish for ether.
• "We’re big fans of Ethereum as an asset. Lately we’re bullish on the idea that the merge will create a wave of price appreciation after creating strong deflationary pressure (in the form of structural demand)," Jack Niewold, founder of the Crypto Pragmatist newsletter, wrote in Wednesday's edition.
• "While inflation in global economies remains at high levels, ETH will likely become the largest deflationary currency [after the merge]," Lucas Outumuro, head of research at IntoTheBlock, said in a research report published on July 23. "The amount of ether issued will drop by approximately 90% as it will no longer be needed to incentivize miners."
• Ether traded at $1,620 at press time, representing a 50% gain for the month, according to CoinDesk data.