Ethereum futures and options data reflects traders’ mixed emotions on $3.2K ETH price

Ether (ETH) has been an emotional rollercoaster for the past three months, mainly due to its twofold price hike. First, it peaked at $4,870 on November 10 and at $4,780 on December 1. However, the double top was soon followed by a harsh rejection, which resulted in $490 million in long futures liquidations in 48 hours.

Once again, hope was instilled on December 8 after Ether started to rise 28.5% in four days to retest the $4,400 support. Soon, the downtrend continued, leading to a low of $2,900 on January 10, the 102-day low of ETH. The drop represented a 40% drop from the all-time high of $4,870 and caused traders to wonder if a bear market had been set.

Ether/USD price in FTX. Source: TradingView

One might argue that Ether is simply following Bitcoin’s 42% correction from the November 10 high at $69,000 and that the recent pullback is partly attributed to the tighter monetary policies of the US Federal Reserve and the impact of the political turmoil in Kazakhstan on mining.

This simple analysis leaves behind some important developments, such as the official digital yuan wallet in China becoming the most downloaded app on local mobile app stores on January 10. Moreover, a beta version of the country’s Central Bank Digital Currency (CBDC) is being used in select cities and also became available for download from app stores on January 4.

Even with fiscal policy pressures and negatively skewed price action, traders still have to monitor the futures premium (the underlying price) to analyze how high or low professional traders go.

Futures traders are getting more anxious

The basis index measures the difference between long-term futures contracts and the current levels of the spot market. An annual premium of 5% to 15% is expected in healthy markets. This price gap occurs because sellers demand more money to withhold settlement for a longer period.

However, a red alert appears when this indicator fades or turns negative, a scenario known as a “rollback”.

Base rate for 3-month Ether futures contract. Source: Laevitas.ch

Notice how the index peaked at 20% on November 8 with Ether above $4,800, but gradually faded to the 8% low on December 5 after ETH flash crashed to $3,480. Recently, when Ether touched a low of $2,900 on January 10, the base rate moved to 7%, its lowest in 132 days.

Thus, professional Ether traders are uneasy despite the 10% recovery to $3,200 on January 11th.

Options traders recently turned neutral

To rule out the externalities of a futures instrument, one must also analyze the options markets. A delta deviation of 25% compares similar call (buy) and put (sell) options. The gauge will turn positive when the fear spreads because the premium for protective call options is higher than similar risk call options.

The opposite happens when greed is the dominant mood causing the delta 25% to turn negative.

Ether options for 30 days 25% delta skew. Source: TradingView

When market makers and whales are bearish, the delta skew 25% shifts into positive territory, and readings between negative 8% and positive 8% are usually considered neutral.

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Ether options traders entered “fear” mode on January 8, as the 25% delta deviation crossed the 8% threshold, peaking at 11% two days later. However, the quick bounce off the $2,900 low has instilled confidence in Ether options traders and moved the options “fear and greed” metric to a minuscule 3%.

At the moment, there is no consensus from Ether traders as the futures markets are indicating slight dissatisfaction and the OPs and whales recently abandoned their bearish stance. This makes sense as the current price of $3,200 is still reversing the last week’s 15% drop and is far from exciting.

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