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Analyst Predicts Ether Price Stability with Options Market Makers Hedging Strategies

Sep 23, 2023 at 12:02 pm

Market participants specializing in Ether options have aggregated a favorable gamma exposure, enabling them to execute a strategy of procuring at lower prices and vending at higher ones. This method plays a pivotal role in steadying fluctuations in price as the expiration date for derivatives looms.

Ether (ETH) underwent a 2% decline over the course of this week, securing a footing just below the pivotal threshold of the 200-week simple moving average, presently positioned at $1,660.

Over the next few days, we anticipate a stabilization in price movements, courtesy of the astute hedging maneuvers executed by options market participants. These actors are anticipated to employ a technique centered around acquiring assets at reduced values and disposing of them at augmented ones in the spot market, thereby alleviating sudden shifts in price.

Market participants, often identified as dealers, serve as linchpins in maintaining uninterrupted liquidity by submitting bids and asks in the market. Their earnings stem from the spread between bid and ask prices, and they remain impervious to alterations in price. They uphold a directionally impartial (delta-neutral) stance, necessitating a consistent cycle of acquiring and dispensing the underlying asset to mitigate susceptibility to oscillations in price.

Imran Lakha, the progenitor of Options Insights, highlighted in a blog entry on Deribit that:

 "Dealers chiefly maintain extensive [gamma] positions for the $1,650-$1,700 strikes, both for 22nd and 29th September [expiries]." 

He underscored that the scale of these positions holds sufficient clout to influence market dynamics and could potentially hinder Ethereum's upward trajectory leading up to the 29th September expiration, especially in scenarios characterized by bullish sentiment.

Gamma signifies the pace at which delta, or the degree of responsiveness of an option to alterations in the underlying asset, changes. The strategies for hedging employed by market participants hinge on their gamma exposure.

When market participants and dealers boast a net positive gamma exposure, they sustain a market stance that is indifferent to direction, achieving this by divesting at higher prices and procuring at lower prices.

In essence, they function as purchasers of the underlying asset in instances where the market experiences a dip, and as vendors when the market experiences an upswing. This infusion of liquidity into the market attenuates sudden shifts in price. Consequently, markets tend to converge towards levels where positive dealer gamma exposure is noteworthy.

As the expiration date approaches, gamma experiences a considerable upswing. This induces dealers with a net positive gamma exposure to further engage in hedging, thus further mitigating fluctuations in price.

Deribit, the preeminent cryptocurrency options exchange globally, is scheduled to settle Ether options valued at a total exceeding $1.7 billion on the imminent Friday at 08:00 UTC.

Read more: Crypto Legal Battle: FTX Pursues Millions

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