A Large number of options traders are in deep, deep trouble as they never thought that Ethereum would soon rise and so have a considerable number of unrealized losses.
Major Signals
- Just this week, ethereum has seen three all-time highs.
- The first atm was above the USD 1,500 level, the second above the USD 1,600, and the third above USD 1,700.
- There is a large amount of exposed call writing activity in ethereum for deep OTM call options from USD 2,000 and USD 3,000 strikes
This week alone,ethereum has seen three all-time highs, the first above the USD 1,500 level, the second above the USD 1,600, and the third above USD 1,700. At the same time, many knew that Ethereum would come into a bull run soon. No one thought it would happen so quickly with each all-time high just hours away from each other. Many people probably thought that some correction would occur or that the ATHs would pace each other out.
But that's how volatile and unpredictable the cryptocurrency market is. This is why there are a whole lot of options traders are left holding a whole lot of unrealized losses after Ethereum’s recent increase in price.
Mr. Balani, head of Delta Exchange, a crypto exchange established in St. Vincent, said that he found out that for deep out of the money (OTM) call options up to USD 2,000 and USD 3,000 strikes in ethereum, there was plenty of exposed call writing activity.” He also explained that huge unrealized losses are the result of short call options positions when prices shoot up. This then compels the traders to purchase extra ethereum to cover their positions.
According to the CEO, in Dec. 2020 and in January, these traders sold the call options approximated at around USD 2,000 or more. They probably thought that Ethereum’s price would not rise so soon and that their options would expire worthlessly.
He pointed out that there is a "chance that those sold options will not expire worthlessly.”
But he also said that when Ethereum's price climbs, it will force the traders to keep buying more ethereum so as not to lose their money. As it keeps moving, they would have to keep buying or else incur heavy losses. And of course, the fact that they are buying keeps means that the price keeps going up. This cycle is what is known as a “gamma squeeze.”
The situation is somewhat similar to the case with Game stop but not entirely so.
