As per the latest data set released by the crypto research group Skew, Ethereum network’s Put-Call open interest ratio has risen to 1.04 on 2nd July. The open interest ratio has increased to a yearly high, which was last seen in July 2019.
The Put-Call open interest ratio measures the number of open put options against the number of Call options. A put option allows the trader to sell the underlying asset of their options contract at a predetermined price before the maturity date of the contract, while the call option gives a right to buy to the trader.
The put-call option ratio has tripled over the past four months and has seen a right angle rise from a value of 0.84 to 1.04 over the past couple of months. A clear sign that traders are working overtime in search of yield. The price of Ethereum has failed to maintain its value above $240 despite multiple moves above the price point, which indicates that the second largest cryptocurrency has exhausted its uptrend.
Luuk Strijers, COO at cryptocurrency exchange Deribit called it a bearish sign and suggested that investors were buying puts to protect their portfolios from falling. He said,
“Typically this implies the market is more bearish as investors are buying puts to protect their portfolios from a fall in the underlying,”
Typically traders write options when the market momentum is bullish, or the market is consolidating, where the trader receives a premium for selling the underlying asset at a downside rate. If the market moves, the value of the put option drops then, in turn, yields profit for the trader.
The Derbit exchange COO also stated that Ethereum’s rise in open interest ratio for put-call options had increased mainly due to traders writing excess put options. Traders with long term positions in the spot market are writing put options to generate some extra yield on their investment.
John Todaro, head of research at TradeBlock, tweeted that Ether price could see an uptrend once the demand for Ether in the Defi ecosystem rises. He explained,
“There’s a lot of excitement around new DeFi tokens, and most of the collateral locked up across those platforms is in Ethereum. As that outstanding ether supply comes down and demands from Defi platforms hits escape velocity, ether will rally hard.”