Ethereum Options Signal Potential Upside, But Risks Remain

Key Takeaways:

• ETH is likely to see a bullish momentum in the medium run based on the data from options.
• Large investors’ caution signals potential downside risks in the near future.
• The $2,600 level is critical to preventing large sell-offs and avoiding liquidation.

Has ETH reached the bottom yet? Options data suggests an upward trend, but risks remain. Do you want to know why? Then continue reading to find out.

The Ethereum options market signals a potential medium-term recovery, supported by bullish sentiment and increased call option trading. On the contrary, the caution exhibited by large investors, the exposure to liquidations, and macro factors may still remain as the key obstacles. This article provides a detailed overview of these factors and their impact on the Ethereum market.

What Are The Current Indicators in the Ethereum Options Market?

The Ethereum options market, a key indicator of investor expectations, is showing signs of recovery. The present market framework has indications of uptrend in the short to medium term as expiration events are foreseen to come into play in February and March periods. The options market reflects all these key factors.

• Open Interest and the Dominance of Call Contracts: The open interest (OI) for the Ethereum options market stood at 70% in the calls contracts. This information specifically proves that most of the traders believe that there are high possibilities that the price of ETH will spike in the future. A report by CoinGlass says that traders are getting more convinced that they are right through the increase in the number of traders believing in the ETH price surge. It’s important to note that the dominance of call options doesn’t guarantee a price surge but reflects market sentiment.
• The Importance of the Put/Call Ratio: The put/call ratio (PCR) is a useful tool for assessing market sentiment. The current PCR, which is low, indicates that call contracts outnumber put contracts, reflecting optimism about ETH’s price potential. A low PCR should not be used in isolation but should be considered alongside other technical and fundamental indicators.

Ethereum’s Open Interest on 16 February 2025. Source: CoinGlass

What Factors Are Influencing the Balance Between Optimism and Caution?

Nicolai Sondergaard, a Nansen’s research analyst, offered his valuable insights on the current situation of the options market of ETH. The point he makes is that “The ETH options market is leaning bullish, but there’s a touch of caution,” that the main reason lies in the following aspects. It is prudent to act with a measure of caution as a way of being mindful of one’s own strategic actions.

• Focus on Target Price Levels: “Most of the action is in calls, especially around $3,000–$4,000 strikes,” Sondergaard confirms. This suggests that traders are targeting these price levels in the near to mid-term. This focus makes sense as it provides clearer market expectations.
• Significance of Expiration Dates: The cluster of February and March expiration dates shows the majority of the traders think ETH will fairly increase these two months. However, it also shows that the date after those dates could potentially see a change in direction, either via the market itself or through other different factors.
• Inconsistent with the Last Performance: Notwithstanding, it is crucial to note that the cost of ETH was virtually unchanged over the week and it has decreased by more than 21% as compared to the last month. This suggests that ETH may need time to regain momentum before a recovery occurs. The recent price underperformance along with the bullish signals from the options market can fasten the wheels of the interest of some traders involved who are potential contrarians.

The Caution of Large Investors: Hedging Against Risk

Although the whole overview might show signs of optimism, the wise caution of the big shareholders should be the major reason for concern. Institutional investors tend to hedge their risks and prepare for various market scenarios.

• Hedging with Put Contracts: According to Sondergaard, “Some big players are hedging with puts (22% of block trades), which shows they’re keeping an eye on downside risks.” This relates to institutions implementing hedging policy against the risk of their stocks being overpriced.
• Option Implied Volatility and Historical Volatility: Implied volatility (IV) is the market’s most frequently expected move in the asset’s price in the future. A higher IV suggests a higher level of uncertainty. According to Sondergaard, the consensus in the market is that Implied volatility skews toward higher targets (OTM calls), indicating bullish sentiment. However, historical volatility remains stable, preventing excessive market swings. This means that though people might be of the opinion that the price of ETH will go up, the actual price moves in the past have not been so fast.

The Critical $2,600 Level and the Risk of Liquidation

The $2,600 level is really important for ETH as it’s a very big milestone. Its holding of a position above this level is necessary to avoid large liquidations and stay in a positive mood. Slipping below this level could trigger a cascade of liquidations.

Threat of Long Position Liquidations: An upcoming $2,600 price correction could see long positions worth in excess of $500 million getting liquidated on all exchanges combined, says CoinGlass data. This could trigger a cascade of liquidations, pushing ETH prices even lower. Such practices are very dangerous in volatile markets. Be careful to take the risks along with the potential profit you can make in trading.

Liquidation chart. Source: CoinGlass

External Macroeconomic Factors Continue to Exert Influence

The price of ETH is just not affected by cryptocurrency market internal factors but it is also highly affected by external macroeconomic factors. It is a part of a more extensive economic landscape.

• Trade Tensions and Monetary Policy: The trade tensions among countries with major financial centers, the central bankers’ policy on money supply (as in the U.S. with the Fed), and the effects of geopolitical events can alter investors’ sentiment and can help them in moving funds into the cryptocurrency market.
• Legal Regulations: The price variation of Ethereum can also be caused by the local legal regulations concerning the cryptocurrency. Regulations may limit the access of the entrepreneurs and decrease the market by making it less liquid, nevertheless regulations that are more investor-friendly can provoke development and subsequently, increase ETH’s reaction. The regulation environment is dynamic and it needs to be refreshed constantly.

For instance, by suing Ripple (XRP) in December 2020, the SEC (Security and Exchange Commission) refrained from the XRP price which signified the real power of regulation over the market. It was demonstrated how quickly legal uncertainty can turn optimism into pessimism.

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Table Summarizing Factors Affecting ETH Price

A thorough comprehension of these factors allows investors to make well-founded decisions, thus they can easily move through the volatile Ethereum market.