Given Ethereum’s ongoing price action, yesterday’s (May 23) approval of a spot Ethereum ETF in the U.S. appears to be a buy the rumor, sell the news scenario. With Ethereum down more than 4%, approximately 350,000 ETH options are set to expire today (Friday, May 24).
These expiring ETH options have a maximum pain price of $3,200 and a put-call ratio of 0.58, giving them a notional value of $1.3 billion.
The Impact of Ethereum ETF
The highest point represents the price level at which option holders would suffer the greatest financial loss. Meanwhile, Ethereum has experienced considerable volatility ahead of today’s expiration.
Ethereum has seen a sharp rise recently on speculation that an ETH ETF may be approved. As traders anticipate even bigger gains, the price of Ethereum has surged above $3,000, breaking through the $3,900 mark and approaching $4,000.
However, just after the Ethereum ETF spot listing emissionETH’s rally came to an abrupt halt, replaced by a 4% drop. Ethereum is currently trading around $3,700. Despite this drop, Ethereum has performed strongly in recent weeks, often outperforming Bitcoin.
This bullish sentiment was mainly driven by the progress of ETF development, which ultimately led to a sharp 20% increase in the price of Ethereum in a single day.
Ethereum’s short-term options implied volatility (IV) reached 150% during this period. This is significantly higher than Bitcoin’s IV during the same period, raising traders’ expectations for price action.
Meanwhile, analysis of block trades and market structure shows that the market remains bullish despite Ethereum’s recent decline.
However, it has proven challenging to maintain consistently high IV levels during each major term. This situation shows that despite the market optimism, it is also volatile and unpredictable.
Against this backdrop, traders may consider calendar spreads a more advantageous strategy. These spreads can help manage risk and take advantage of volatility without having to rely solely on sustained high volatility levels. They typically involve buying and selling options with different expiration dates.
It is worth noting that the approval and launch of the Ethereum ETF had a significant impact on the market, leading to increased volatility. Just before the ETF was approved, the price of Ethereum fluctuated significantly, resulting in more than $132 million in long liquidations.
The liquidation highlights the risks and dramatic shifts in market sentiment that can occur during such a high-profile event.
Potential for selling or profit-taking activity
With 350,000 Ethereum options expiring today, market participants will be closely watching price action around the biggest pain point of $3,200.
Meanwhile, cryptocurrency analyst Ali Martinez Observed The number of Ethereum deposits into digital asset exchange wallets continues to increase. This trend suggests that Ethereum holders may be preparing for a large-scale sell-off or increased profit-taking activity.
Additionally, the Tom DeMark (TD) sequential indicator is flashing a sell signal on Ethereum’s daily chart. A green nine candle has appeared on the daily chart, indicating increasing selling pressure. This could cause the price to retrace between one to four daily candles. It could also spark a new downtrend before the uptrend resumes.
Despite these bearish signals, Ethereum’s recent price correction could provide an opportunity for long-term investors to buy on the dip. Historically, such corrections have been viewed as entry points by those who take a long-term view on Ethereum’s potential.
While the SEC has approved the 19b-4 application for the Ethereum ETF, the S1 registration is still pending. The registration process is expected to take another few weeks. These funds are waiting to be officially listed before they can record significant inflows, which could trigger a rally.
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