Markets
Ether (ETH) put-call ratio hits one-year high as price rally stalls
That of the ether (ETH) The price rally has stopped since Monday. However, a popular options market indicator continues to show a bullish bias.
The token’s price has recovered to $3,730 from a two-month high of $3,973 reached on Monday. Show CoinDesk data. Prices plummeted last week after the US SEC moved closer to approving highly anticipated spot ether exchange traded funds (ETFs).
Ether’s put-call open interest ratio, which compares the number of active put or bearish contracts to bullish or call options, rose to 0.61 on Deribit early Thursday, the highest in at least a year, according to data source Glassnode.
An increase in the ratio is said to reflect a bullish trend, although movements in the ratio are subject to interpretation.
“Ethereum put-call ratio reached 0.6, signaling a bullish outlook following ETH ETF spot approvals,” algorithmic trading firm Wintermute said in a note shared with CoinDesk.
A put option gives the option buyer the right to sell the underlying asset at a specific price by a specified date. More experienced traders and investors typically use options to hedge spot market positions and reap additional returns on top of coin holdings. A relatively higher number of active put options may result from traders adding puts to protect their coin holdings (bullish spot market position) from a sudden drop in prices.
Another possibility is for traders to sell put options in a rising market to generate additional income on top of their spot market holdings. A put option seller receives a premium as compensation for offering insurance against falling prices.
The bullish interpretation of the increasing ratio is consistent with positive biases between calls and puts across all time frames. As of this writing, according to Amberdata, the seven-day tilt is 2%, while the 30-, 60-, 90-, and 180-day tilts have returned a value above 5%. This is a sign of the relative richness of bullish calls or bets.
That said, traders should be aware of a continued increase in the put-to-call open interest ratio. A very high ratio, above 1, indicates extreme bullishness and is viewed by contrarian investors as an imminent market top. Readings below 0.20 and below indicate extreme bearishness, traditionally seen at bear market lows.