Ethereum option expiry represents risk below $2,900

Ether (ETH) has failed to sustain above $3,400 for the past 40 days, raising concerns among traders that the bears will continue to dominate for an extended period of time.

Important points:

• The $6 billion Ether option expires on December 26th, with the number of call (buy) bets outnumbering the number of put (sell) products by a factor of 2.2.

• The bears have the advantage unless ETH price breaks above $3,100.

Before the 28% crash in November, bulls had expected the year-end price to be above $4,000, so the expiration of $6 billion in ETH options on December 26 could add further pressure.

Despite the number of call (buy) options outnumbering the number of put (sell) options by a factor of 2.2, Ether’s price at 8:00 a.m. UTC on Friday will determine whether the bears maintain control.

Deribit accounts for 70% of total open interest, followed by Chicago-based CME with 20%. However, most of the $4.1 billion in call options are set to expire worthless on Friday as traders focused their bullish bets on year-end ether prices between $3,500 and $5,000.

Less than 15% of the total call options were located below $3,000.

Related: Trend Research Quietly Becomes One of Ethereum’s Biggest Whales with 46,000 ETH Purchase

Even excluding overly optimistic calls above $5,000, where buyer costs are likely limited, less than 25% of these instruments traded below $3,200, according to the data.

Traders often sell covered calls at year-end strikes of $8,000 or $10,000, but there is no realistic expectation that they will reach those levels.

While the bulls were overly confident that Ether would regain $3,400 by the end of the year, the bearish strategy may have gone too far by concentrating bets between $2,200 and $2,900.

If Ether trades above $2,950 on Friday, more than 60% of the $1.9 billion put options will expire worthless. Still, as long as ETH remains below $3,200, the bearish position remains favorable.

Investors reacted to reports last Thursday that Intel had failed to push advanced chip manufacturing in the United States in a bid to challenge world leader Taiwan Semiconductor (TSMC US).

According to Bloomberg, Nvidia (NVDA US) has stopped testing products that rely on Intel’s manufacturing processes.

ETH options traders recognize rising risk

As traders priced in a weakening outlook regarding the economic impact of artificial intelligence in the US, many moved to hedge their ETH positions.

Demand for bearish ETH option strategies such as “bear diagonal put spreads,” “bear put spreads,” and “bear call spreads” has increased, especially after multiple failed attempts to regain the $3,400 level over the past five weeks.

$3,100 is key for Ether bulls

Below are four possible scenarios for year-end ETH aggregate option expiration based on current price trends.

• Between $2,700 and $2,900: The end result is a put (sell) product in favor of $580 million.

• Between $2,901 and $3,000: The end result is a put (sell) product with a $440 million advantage.

• Between $3,101 and $3,200: A balanced outcome between call and put options.

• Between $3,201 and $3,300: The final result is a call (buy) product with a $150 million advantage.

Ether investor sentiment could further weaken if the December 26 expiry falls below $2,900. However, Ether bulls still have a chance to push the price towards $3,100 on Friday, which would help balance positioning and move Ether price away from the December lows of $2,775.

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