Home » $10K Options on Ethereum Are 88% Lower Than Their All-Time High

$10K Options on Ethereum Are 88% Lower Than Their All-Time High

by Brian Armstrong
$10K Options on Ethereum Are 88% Lower Than Their All-Time High

On May 12th, Ether’s price hit a new all-time high of $4,380, a gain of 500% over the course of the year. This rally was even stronger than the one seen in late 2017. The price of Ether surged 390% from $290 in November 2017 to $1,420 in mid-January 2018 on the back of the infamous bull market and bubble.

It may be too soon to tell if the massive surge this year was a DeFi and NFT bubble that will take two years to recoup its high. However, when looking at the total assets managed, some observers, like Alex Mashinsky, CEO of Celsius Network, say that Ether has already “flipped.”

Mashinsky says that Ether is used for yield farming, staking, or locking up crypto in exchange for rewards. Bitcoin is mostly used as a place to store value.

Even though the price of Ether is 47% below its all-time high, investors are still excited because they think scaling will get better. Also, on July 1, the multinational accounting firm Ernst & Young released Nightfall 3, the third version of their scaling solution for Ethereum that doesn’t require anyone to know anything about it.

To increase the speed and security of Ethereum transactions, Nightfall 3 implements zk-Rollups, a layer-two scalability smart contract that consists of batch transfers “rolled into one transaction.” Gas prices might drop by as much as 90%, the report suggests.

Options price premium can reduce daily

No matter how optimistic investors are about the price of Ether, the premium on an options contract goes down as the expiration date gets closer. Because of this effect, the chance of getting the price you want drops by a huge amount as the number of days left drops.

Note that if the price of Ether is less than $10,000 as of December 31 at 8:00 AM UTC, this option will be worthless. In any case, even if the underlying price reaches $9,950, the option buyer will have lost the initial $734 they invested. Therefore, such call option holders required a 160% increase in value to break even.

Not every $10,000 option trader is reckless

Because professional traders use call options in schemes with multiple expiration dates, the $10,000 Ether option trades shouldn’t be seen as pure speculative bullish bets, as Cointelegraph has pointed out before.

The $10,000 call option has a 10% initial margin requirement, allowing some leverage for traders aiming to profit from market distortions by selling the option for a return.

If someone bought the $6,000 December 31st Ether call option contract, they could get the 0.073 ETH premium by selling one contract and putting in 0.20 Ether.

In just half a year, you’ll have earned a return of 36.5%, or 86% annual percentage yield (APY). If a big margin isn’t put down, the seller of a call option could lose all of their money if the price of Ether goes up.

When the market is doing well, the premium on call options goes up. This makes the same trade much more profitable.

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