Ethereum price (
Leveraged bulls lagged the recent rally
Retail traders usually avoid quarterly futures due to their price difference from spot markets. Meanwhile, professional traders prefer these instruments because they prevent the fluctuation of funding rates in a perpetual futures contract.
The two-month futures annualized premium should trade between +4% to +8% in healthy markets to cover costs and associated risks. When the futures trade at a discount versus regular spot markets, it shows a lack of confidence from leverage buyers, which is a bearish indicator.
The chart above shows that derivatives traders using futures contracts exited the negative premium on Jan. 1, meaning the extreme bearish sentiment is gone. However, the current 1.5% premium remains below the 4% threshold for a neutral market. Still, the absence of leverage buyers’ demand does not mean traders expect a sudden market downturn.
For this reason, traders should analyze Ether’s options markets to understand whether investors are effectively pricing in odds of a $600 retest for ETH.
Options traders have stopped overcharging for downside protection
The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.
In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 10%. On the other hand, bullish markets tend to drive the skew indicator below -10%, meaning the bearish put options are discounted.
The delta skew currently sits at 11% after flirting with the neutral range on Jan. 9, meaning that whales and market makers no longer charge excessive premiums for protective put options. That is a stark contrast from late 2022 when those trades were running up to 19% more costly than equivalent bullish strategies using options.
Related: Navigating the crypto crash can be challenging, but there are tools to help you in 2023
Overall, both options and futures markets point to pro traders becoming more confident and increasing the odds of $1,300 becoming a support level. So even if the newsflow doesn’t seem appealing, traders are unwilling to add bearish bets, which might fuel further positive momentum for Ether.
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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
