The ether options market makers favor the long gamma position at $1.8K

Ether, the second-largest cryptocurrency by market cap, has mostly been confined to a narrow price range around $1,800 since mid-May and is unlikely to change much anytime soon, maker positions in the options market have noted.

This is because market makers – who are responsible for providing liquidity to the exchange’s order book and who are always on the other side of investors’ bets – had to hedge their exposure to their options by balancing positions in the forward or spot market to be able to operate a market neutral or delta neutral portfolio. . The so-called delta hedging procedure, as a moving underlying asset, can affect the spot market price and is known to stop price fluctuations.

According to Jeff Anderson, a senior trader at STS Digital, market makers are currently filling in what are known as positions. long gamma In ether options at an exercise price of $1,800 that expires on June 30. Market makers are said to acquire the long gamma position at a particular price level when they buy options at that level.

“So as it goes up, market makers are likely to sell ETH. Instead, market makers are buying cryptocurrencies at lower prices,” Anderson told CoinDesk. Therefore, the spot price could stay near $1,800.

Options are contracts that give the buyer the right, but not the obligation, to trade the underlying asset at a predetermined price on or before a specified date. A call option gives the right to buy, while a put option gives the right to sell. Buying a long gamma position means holding a long position in the put or put options.

Long gamma positions force market makers to buy the underlying asset when the price drops below that level in order to maintain overall portfolio neutrality. In return, they sell the asset when the price goes up. Gamma refers to the rate of change in the options delta per one point movement in the underlying asset.

Griffin Ardern, a volatility trader at crypto asset management firm Blofin, said delta hedging by market makers could have a significant impact on the spot price.

“Given the lack of enthusiasm among perpetual futures and futures traders right now, the impact of market maker hedging could be significant,” Ardern said.

The article was edited by Sheldon Ryback and translated by Natalia Polowski.