Ethereum price volatility has experienced a 2% drop this week, falling below the crucial support of the 200-week simple moving average at $1,660. This decline may lead to options market makers or dealers buying low and selling high in the spot market, which could help keep prices steady in the coming days. Market makers or dealers are vital participants in the market, as they provide liquidity by constantly posting both a bid and ask in a market. These individuals profit from the bid-ask spread and remain neutral to price action. They maintain a direction-neutral book, which requires continuous buying and selling of the underlying asset to limit exposure to price fluctuations.
Dealers’ Influence on Ethereum Price Volatility
Imran Lakha, founder of Options Insights, mentioned that dealers mainly hold long gamma positions for the $1,650-$1,700 strikes for 22nd and 29th September expiries. The magnitude of these positions is significant enough to impact market dynamics and could limit Ethereum’s movement leading up to the 29th September expiry, particularly on the bullish side.
Gamma refers to the rate of change of delta or sensitivity of an option’s price to changes in the underlying asset. The nature of market makers’ hedging activity depends on their gamma exposure. When market makers and dealers have a net long gamma, they maintain their overall market exposure neutral by selling high and buying low.
In simpler terms, they buy the underlying asset when the market drops and sell when the market rallies. This action adds liquidity to the market and reduces price fluctuations. As a result, markets often gravitate toward levels where the positive dealer gamma exposure is significant.
Impact of Gamma Exposure on Ethereum Price Volatility
As expiry approaches, the gamma increases significantly, requiring more hedging by dealers with net positive gamma exposure. This additional hedging further suppresses price volatility. Deribit, the world’s largest crypto options exchange, will settle ether options worth over $1.7 billion next Friday at 08:00 UTC.
The Ethereum price volatility may continue to be influenced by these market makers and dealers as they adjust their positions in response to market conditions. By maintaining a direction-neutral book and continuously buying and selling the underlying asset, they can help stabilize prices and reduce price gyrations.
Conclusion
In conclusion, the recent 2% drop in Ethereum price volatility has pushed it below the critical support level of the 200-week simple moving average at $1,660. This decline could lead to options market makers or dealers buying low and selling high in the spot market, potentially stabilizing prices in the coming days. The influence of market makers and dealers, particularly those with net long gamma exposure, may continue to impact Ethereum price volatility as they adjust their positions in response to market conditions. As the 29th September expiry approaches, the market may gravitate toward levels where positive dealer gamma exposure is significant, potentially dampening price fluctuations and stabilizing the Ethereum market.
