Ethereum options traders turn bullish following ETF approval, says Nansen analyst

The approval of spot Ethereum (ETH) exchange-traded funds (ETF) in the US on May 23 made ETH options traders more bullish, according to Aurelie Barthere, Principal Research Analyst at Nansen. Despite failing to spark a significant spot market upside, the implied volatility of call and put options on ETH has decreased slightly since the approval.

Year-to-date implied volatility of call and put options on ETH, 90-day plus expiry. Image: Nansen

“Funding rates are neutral now, though the recent news about ETH ETF has led to ETH call prices jumping relative to put. So, options traders are now bullish ETH. ETH put options were the most expensive YTD, in absolute terms and relative to call options, on March 28, 2024 (option traders most bearish). After this date, put option prices declined till May 16, and then recouped some of this decline (possibly in anticipation of the ETF approval). Call options have been more expensive than puts in the last few days, which is to be expected,” stated Barthere.

Therefore, traders could use the relatively cheap implied volatility to hedge against the scenario where the ETH price tops, the Principal Research Analyst at Nansen added. “Looking at the z-score of the difference between calls and puts could be used as a mean-reverting strategy.”

Implied volatility of call and put options on ETH, 90-day plus expiry in 2020. Image: Nansen

Ethereum metrics spike

Ethereum-related funds registered negative $22 million in year-to-date flows until May 25. However, the ETF approval attracted investors, with ETH-indexed exchange-traded products (ETP) registering $33.5 million in inflows last week. As a result, these ETP flows are positive again in 2024.

Moreover, the total value locked (TVL) on Ethereum-based decentralized applications has risen 21% in the last 30 days, according to data aggregator DefiLlama, amounting to over $116 billion and granting 70% dominance in the decentralized finance ecosystem.