Two weeks after Ethereum’s ‘Shanghai’ (aka Chapera) upgrade, the cryptocurrency options market sees more downside risk for Ethereum (ETH), the native token of this smart contract blockchain, than for market leader Bitcoin (BTC). It seems to be recognized as high.
On April 25th, options related to Ethereum and Bitcoin showed a bias toward puts, or bearish bets, that offer buyers protection against price declines. Demand for put options, especially in the Ethereum market, was higher than in the Bitcoin market.
25 Delta Risk Reversal data tracked by crypto derivatives analytics firm Block Scholes shows Ethereum out-of-the-money (OTM) puts (bearish) 5 against OTM calls (bullish) Bitcoin OTM puts were trading at a 3-point premium to OTM calls, while trading at a volatility point premium.
Brock Scholes research analyst Andrew Melville said in a research note on the 24th, “The (risk-reversal) skew of ETH options compared to BTC options recovers after the chapela upgrade. reversed, and OTM puts are now priced at a 5 vol premium to 1-month calls.”
“This suggests a return to the slightly negative sentiment towards ETH that we have been commenting on throughout 2023,” added Melville.
Implied volatility (IV) refers to an investor’s expectation of price volatility over a specified period of time. As implied volatility rises, demand for options rises and option premiums rise.
Risk Reversal tracks the IV spread of OTM puts and OTM calls, telling you in which direction market volatility is stronger. An option becomes OTM when the market price of the underlying asset falls below the set price (strike price) for a bullish call or above the set price for a bearish put.
Ethereum’s 1-month risk reversals have consistently fallen below Bitcoin, with the exception of the post-“Chappella” week, suggesting a relatively strong put bias.
Risk reversals for both recovered from negative to near zero, suggesting a shift in sentiment from bearish to neutral after the chapela upgrade was implemented on April 12.
The upgrade now opens staked Ethereum withdrawals, removing the risk of the common passive investment strategy of depositing coins into the network in exchange for rewards. After the upgrade, Ethereum climbed to $2,140 for the first time in 11 months, but has since retreated below $1,900.
｜Translation: coindesk JAPAN
｜Editing: Toshihiko Inoue
| Image: Block Scholes
｜Original: Optimism From Ethereum’s Shapella Upgrade Is Fading, Crypto Options Show