The Ethereum options market is stagnating after its monthly expiration on September 25. Open interest in ETH has also declined, indicating an overall decrease in trading activity.
“Open interest” in futures and options trading refers to the total sum of active contracts in the market. It sums up the cumulative number of all contracts held by both buyers and sellers, gauging overall market activity.
Since September 1, open interest in Ethereum options has declined from $544 million to around $362 million, according to data from Skew.
This 33.4% drop in open interest signifies that traders anticipate low volatility in the near term. Here’s why: if the number of investors betting for or against Ethereum increases, then the open interest would naturally increase. But throughout the past four weeks, the volume of Ethereum in the options market has dropped, as has open interest. This simultaneous drop in both open interest and volume suggests that traders do not expect massive price movements to happen, for now.
There are two potential reasons traders might not be expecting an Ethereum rally or a heavy correction in the near term.
First, both Bitcoin and Ethereum are seeing consolidation under key resistance levels. In technical analysis, a prolonged consolidation under a major resistance area generally points toward weakening money in the short term.
Ethereum faces two pivotal price levels in the near term at $350 and $373. It’s currently stuck between them, and it seems investors don’t expect dramatic movement in the near-term. The $373 resistance level is crucial because it marked the peak of the ETH rally in June 2019. In technical analysis, if an asset continuously rejects (drops from) a previous peak, it is considered a resistance level.
Second, throughout the past three years, the monthly candle for September has always closed red for Bitcoin. (A monthly candle refers to the monthly candle chart, which demonstrates the performance of ETH on a monthly timeframe). Given that September has historically been a slow month for both Bitcoin and Ethereum, traders might not be expecting significant volatility.
Technical analysts say that Ethereum faces a critical roadblock in the $366 to $375 resistance range. ETH has continuously failed to break through that area, which suggests that there is not enough buying demand to push ETH higher in the near term.
Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, said that there are two possible scenarios for ETH. It could either rise above $375 and move to the next resistance level at $415. In contrast, if ETH drops below key support levels, like $350, it is at risk of dropping to $280.
“All right, this one is moving upwards and that's good. However, the crucial hurdle is around $366-375 to break. If that breaks, ETH is ready for $415. If not, I assume $280 as a likely possibility for further corrective movements in Q4,” Poppe explained.
The lack of clarity in the price trend of Ethereum and the recent options expirations are likely causing an ETH stalemate in the spot and options markets.