Due to the hedging action of options market makers, market watchers believe that the price volatility of ether prior to next Friday’s derivatives expiry may be reduced. The fact that options dealers have accumulated net positive or long gamma exposure suggests that they may be considering a buy-low, sell-high strategy.
The 200-week simple moving average, around $1,660, has provided crucial support for the price of ether, which has fallen 2% this week. Its prices may level off in the next days as a result of market makers’ tactics.
A market maker, also known as a dealer, is a party that consistently adds liquidity to a market by publishing both a bid and an ask while earning money from the bid-ask spread. In order to reduce exposure to price volatility, these companies often maintain delta-neutral portfolios, necessitating ongoing purchases and sales of the underlying asset.
Dealers mainly maintain long [gamma] positions for the $1,650-$1,700 strikes, for both the 22nd and 29th September (expirations)…” Imran Lakha, the founder of Options Insights, warned that this could limit Ethereum’s mobility in the days running up to the 29th of September expiry, particularly on the optimistic side.
By purchasing low and selling high, market makers and dealers that have net long gamma try to create market neutrality, reducing price volatility and increasing liquidity. Gamma sharply rises as the expiration date approaches, requiring dealers with net positive gamma exposure to hedge even more, thus reducing price volatility. The world’s largest cryptocurrency options exchange, Deribit, will settle ether options worth over $1.7 billion on the following Friday at 08:00 UTC.