Buy the rumor, sell the news? $10K Ethereum options are 88% down from their peak

[RSRS]

This year's 500% accumulated gain took Ether's (ETH) price to a $4,380 all-time high on May 12, and this rally was even more robust than the late-2017 move. The famous bull market, or bubble, depending on how you see it, took Ether's price on a 390% rally from $290 in November 2017 to $1,420 in mid-January 2018.

Maybe this year's mega rally was a DeFi and NFT bubble that will take another two years to reclaim its peak, but it seems premature to make a prediction now. However, some analysts, including Celsius Network CEO Alex Mashinsky, argue that Ether's "flippening" has already happened when comparing the breadth of assets under management.

According to Mashinsky, Ether's primary use case is yield farming, the practice of staking or locking up crypto in return for rewards, while Bitcoin is mostly used as a store of value.

The expectation of increased scaling is another reason that leads Ether investors to remain bullish despite the current price being 47% below its all-time high. Furthermore, on July 1, global auditing giant Ernst & Young released the third iteration of its zero-knowledge proof Ethereum scaling solution called Nightfall 3.

Nightfall 3 uses zk-Rollups, a layer-two scalability consisting of batched transfers 'rolled' into one transaction, to improve transaction efficiency and privacy on the Ethereum network. According to the study, it will likely result in a 90% gas fee reduction.

Options price premium can reduce daily
Regardless of how bullish Ether investors are, the closer an options contract comes to the expiry date, the smaller the premium becomes. This effect means that the fewer days to reach a target price significantly reduces its odds.


Ether $10,000 call option for Dec-31 at Deribit, in ETH. Source: Deribit
The above chart shows Ether's $10,000 call (buy) option for year-end, peaking at 0.177 ETH on May 14. At that time, Ether was trading at $4,150, so each option was priced at $734.

Keep in mind that this option will be worthless if Ether trades below $10,000 on Dec. 31 at 8:00 am UTC. Even if the price reaches $9,950, the option buyer would have wasted his $734 upfront. Therefore, a 160% upside was needed for such call option holders to become profitable.

Sourch